According to the requirements of company Law, if any company fails to comply with the provisions of the Companies Act, the officer in default is subject for penalties.
In this caselaw, the Regional Director has entirely focused on the Company Secretary and stated that the Company Secretary is solely responsible for the Company’s Secretarial Standards and Compliances. Read the editorial till end.
As per Section 2(60) “Officer who is in default“, for the purpose of any provision in this Act which enacts that an officer of the company who is in default shall be liable to any penalty or punishment by way of imprisonment, fine or otherwise, means any of the following officers of a company, namely:—
(i) whole-time director;
(ii) key managerial personnel;
(iii) where there is no key managerial personnel, such director or directors as specified by the Board in this behalf and who has or have given his or their consent in writing to the Board to such specification, or all the directors, if no director is so specified;
(iv) any person who, under the immediate authority of the Board or any key managerial personnel, is charged with any responsibility including maintenance, filing or distribution of accounts or records, authorises, actively participates in, knowingly permits, or knowingly fails to take active steps to prevent, any default;
(v) any person in accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act, other than a person who gives advice to the Board in a professional capacity;
(vi) every director, in respect of a contravention of any of the provisions of this Act, who is aware of such contravention by virtue of the receipt by him of any proceedings of the Board or participation in such proceedings without objecting to the same, or where such contravention had taken place with his consent or connivance;
Appreciating Move by the Government for maintaining the Corporate Governance :
The ROC Chennai issued a penalty on a company for failing to comply with secretarial standards under the Companies Act, 2013. ROC The penalty was imposed on the company, managing director, and whole-time director in accordance with the definition of an officer who is in default.
“Adjudication Order in the Matter of Madras Fertilizers limited ”
1. FACTS OF THE CASE:
a. As per Sec. 118(10) of the Companies Act, 2013, every company shall observe secretarial standards with respect to general and Board meetings specified by the Institute of Company Secretaries of India constituted under section 3 of the Company Secretaries Act, 1980 (56 of 1980), and approved as such by the Central Government.
b. As per Clause 14 of Secretarial Standard – ‘Distribution of Gifts’ – No gifts, gift coupons, or cash in lieu of gifts shall be distributed to the Members at or in connection with the general meeting.
c. This Company had given SBI card to all 53 minority shareholders based on their requests.
d. Hence, it is affirmed that the subject company has violated the provisions of Sec. 118(10) of the Companies Act, 2013 read with SS-2 in Clause 14 of Secretarial Standard.
ORDER OF ROC:
The Registrar of Companies, Chennai, Tamil Nadu examined the said default and passed the Adjudication Order No. ROC/CHN/MADRAS/ADJ/Order/S.118/ 2022, dated 30.06.2022 (impugned order) under Section 454 (3) and (4) of the Companies Act, 2013 for default in compliance with the requirements of Sec. 118(10) of the Companies Act, 2013 read with SS-2 in Clause 14 of Secretarial Standard and imposed a penalty of
| Name of Applicant | Total Maximum Penalty (Rs.) |
| Company | 25,000/- |
| MD and WTD (Officer in Default) | 5,000/- |
APPEAL WITH REGIONAL DIRECTOR:
I. FACTS OF THE APPEAL:
a. The Appellants have contended that the non-compliance had occurred due to unavoidable circumstances and default was unintentional.
b. The Appellants said that that the 54th AGM was conducted on 29.12.2020 via Video Conferencing due to COVID-19 restrictions and was the first time AGM conducted through electronic means. Prior to the aforesaid AGM, refreshments were given to shareholders when attended physically.
c. The company took a humanitarian approach towards shareholders by giving complimentary gift cards in lieu of the above refreshments and neither a malafide intention nor any detrimental interest vested with the Company in dispatching the same.
d. As per the provisions of Section 205 (1)(b) of the Companies Act, 2013, one of the functions of the Company Secretary shall be to ensure that the Company complies with the applicable Secretarial Standards.
e. It is admittedly the primary duty of the Company Secretary to ensure that the General Meetings including AGMs and Board Meetings are held in accordance with law.
ORDER OF REGIONAL DIRECTOR:
Solely Responsibility of Company Secretary:
i. It is the duty of the Company Secretary to take utmost care that the Company complies with all the Secretarial Standards.
ii. whereas in the instant case, the Company has violated Clause 14 of SS-2 read with Section 118 (10) of the Companies Act, 2013.
iii. As such, the Company Secretary alone will be held responsible for the mistake committed.
iv. Moreover, when a Company Secretary is appointed, the Managing Director and Whole-time Director can be expected to assume that Company Secretary would take care of compliances with Secretarial Standards and not intervene in those matters.
Set Aside Penalty on person other than CS:
v. The provisions is Sec. 2(60) also recognizes the Company Secretary who is a KMP as liable for such compliances.
vi. In the instant case, the adjudication order suffers from an incurable illegality as the Company, Managing Director and Whole-time Director were held liable to the exclusion of the Company Secretary, who is actually the officer who is in default, therefore, liable to be set aside.
vii. Hence, the Penalty imposed on the Company, Managing Director and Whole-time Director is set aside and ROC is directed to initiate necessary action against the Company Secretary alone as sub-section (2) of Section 205 specifically states that the provisions contained in Section 205 shall not affect the duties and functions of the Board of Directors, Chairperson of the Company, Managing Director or Whole-time Director under this Act or any other law for the time being in force.
Conclusion:
After reviewing the Hon’ble Regional Director’s ruling, one thing is clear: if the company has a Company Secretary, the CS must ensure that the company is completely compliant with the provisions of the Companies Act, 2013.
In the event of noncompliance with provisions, CS is entirely responsible for the penalty and its consequences. The government has enhanced the CS’s responsibilities, raising their importance in the eyes of corporations. Every CS should priorities compliance with the provisions.
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Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com).
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