Registrar of Companies, Gujarat, Dadra & Nagar Haveli has issued an order imposing penalties on Essar Shipping Limited for violating Section 197 of the Companies Act, 2013. The order states that the company paid managerial remuneration to a director exceeding the requisite approvals mandated by Companies Act, 2013.
Section 197 of the Companies Act, 2013 states that if the remuneration paid to a director or a manager of a company exceeds the prescribed limit, it requires prior approval from the company’s shareholders and the Central Government. The limit for such remuneration is determined based on the company’s net profits and is subject to certain conditions mentioned in Schedule V of the Act. If the remuneration paid exceeds this limit without obtaining the necessary approvals, it constitutes a violation of Section 197 of the Companies Act, 2013.
The penalty amounts to Rs. 5,00,000/- for the company and Rs. 1,00,000/- each for the CEO and another director. The company and its directors have been given 90 days to pay the penalties, failing which they may face further fines or imprisonment as per the provisions of the Act. An appeal can be filed within 60 days from the date of receipt of the order.
BE FOR THE ADJUDICATING OFFICER
REGISTRAR OF COMPANIES, GUJARAT, DADRA & NAGAR HAVELI
Order No. ROC-Guj/Adj. Order/Sec. 197/2023/999 To 1003 Dated: 18 MAY 2023
ORDER FOR PENALTY UNDER SECTION 454 OF THE COMPANIES ACT, 2013 READ WITH COMPANIES (ADJUDICATION OF PENALTIES) RULES, 2014 FOR VIOLATION OF SECTION 197 OF THE COMPANIES ACT, 2013.
IN THE MATTER OF M/s. ESSAR SHIPPING LIMITED
Date of hearing- 09.05.2023
1. Shri R. C. Mishra (ROC), Adjudicating Officer
2. Indrajit Vania (DROC), Presenting Officer.
Company/Officers/Directors/KMP/ Authorised Representative:
Mr. Mayank Arora (PCS), Ms. Nisha Banrnval (CS), Mr. Sanjay Shah and Mr. Kunjan Mysorewala the Authorised Representatives of the Company/Directors.
Appointment of Adjudication Authority: –
1. The Ministry of Corporate Affairs vide its Gazette Notification No. A-42011/112/2014-Ad. II dated 24.03.2015 has appointed the undersigned as Adjudicating Officer in exercise of the powers conferred under section 454 of the Companies Act, 2013 (hereinafter known as Act) read with Companies (Adjudication of Penalties) Rules, 2014 (Notification No. GSR 254(E) dated 31.03.2014) for adjudging penalties under the provisions of Act.
2. M/s. ESSAR SHIPPING LIMITED (herein after referred to as “the Company”) is a Company registered under the provisions of the Companies Act, 1956/2013 in the State of Gujarat. having CIN (L61200GJ2010PLC060285) and presently having its registered office situated at EBSTL Premises, ER-2 Building (Admn. Bldg.), Salaya, 44KM, P.O. Box No. 7, Taluka Khambhalia, Devbhumi, Dwarka, Gujarat- 361 305.
Fact of the case:
3. The Ministry of Corporate Affairs vide letter No. 07/120/2019/CL.II (ER) dated 27.01.2021 has ordered Inspection of the Company under section 206(5) of the Companies Act, 2013. Accordingly, inspection under section 206(5) of the Companies Act, 2013 has been carried-out by the office of the Regional Director (NWR), Ahmedabad. During the course of inspection, the inspecting officer has pointed out the violation of section 197 of the Companies Act, 2013 as under:
“It is observed from the Auditors report for 31.03.2018 that managerial remuneration paid to the director to the extent of Rs. 1.41 Crore exceeds the requisite approvals mandated by the provisions of the Section 197 read with Schedule V to the Companies Act, 2013. The Company has not obtained the requisite approval in this regard.
Hence, it is a violation of Section 197 of the Companies Act, 2013 and accordingly, the Company and its officers in default are liable for penal action under section 197 of the Companies Act, 2013″.
4. The office of the undersigned issued adjudication notice under section 454 of the Companies Act, 2013 for violation of section 197 of the Companies Act, 2013 to the Company and its officers in default on 11.04.2023 with request to remit the penalty as prescribed under the provisions of the Act.
5. Thereafter the Company vide letter dated 26.04.2023 requested the Adjudicating Officer for physically hearing in the matter on 09.05.2023. Accordingly, the undersigned had fixed the hearing on 09.05.2023 at 2.30pm in the 0/o ROC, Ahmedabad.
Reply / submission made by Authorized Representatives.
6. Mayank Arora (PCS). Ms. Nisha Banrnval (CS), Mr. Sanjay Shah and Mr. Kunjan Mysorewala the Authorized Representatives of the Company/directors present in the hearing proceeding on 09.05.2023 at 2.30pm. They submitted reply letter dated 28.04.2023 which is taken on record. They further submitted that Mr. Ranjit Singh was appointed as an Executive Director and CEO on the board of the Company vide Special Resolution passed by the Shareholders of the company on 29.12.2017 pursuant to section 149, 178, 161, 196(3), 197 and 203 read with Schedule V of the Companies Act, 2013 subject to approval of Central Government. They further stated that the company has earned a profit of Rs. 46.4 Crores in the FY. 2017-18 and the remuneration paid to Ranjit Singh CEO (KMP) was Rs. 1.19 Crores which does not exceed five percent of net profits of the company. Hence, remuneration paid to Ms. Ranjit Singh is in accordance with the provisions of the companies Act, 2013.
They further submitted that the company had also applied to Central Government for approval of remuneration paid to Directors vide SRN G82161803, which was abated by the Central Government vide letter dated 22.10.2018. The Central Government has closed our application due to existence of section 66 to 70 of the Companies Act, 2013. Therefore, penalty should not be imposed on the company and its directors.
They further submitted that Mr. Shrinivasan Natesan and Mr… Prabhat K. Shrivastava have been expired and Mr. Bhupindersingh Kumar and Ms. Neelam Kapoor are independent Directors in the company. Hence penalty should not be imposed to them and Mr. Awaneesh K. Shrivastava is a Whole Time company Secretary in the company and he should not be punished. In view of the above they requested to take lenient view in the matter.
7. Submission of the Presenting Officer:
The presenting officer submitted that all the facts regarding non compliance of section 197 of the Companies Act, 2013 were already submitted before the Inspecting officer during course of inspection. The reply of the company was not concurred/ satisfactory to the Inspecting officer hence, Inspecting Officer recommended for violation of section 197 of the Companies Act, 2013.
The presenting officer further submitted that the member/shareholders of the company vide Special Resolution dated 29.12.2017 had approved the remuneration of Mr. Ranjit Singh Executive Director and (CEO) subject to approval of Central Government. Thereafter, the company should immediately seek approval of the Central Government for compliance of section 197 of the Companies Act, 2013. However, the company vide SRN G82161803 dated 31.03.2018 (i.e. delay of 81 Days) had filed application seeking approval of remuneration from Central Government after Auditors observation. It is also pertinent to note that as per Independent auditors report attached with the financial statement of 2017-18, the said auditor had qualified report with remarks that the Managerial Remuneration paid to the director of the company for the year ended March 31,2018 to the extent of 1.41 crores exceeds the requisite approvals mandated by the provisions of Section 197 r.w. Schedule V of the Companies Act, 2013.
Thereafter, the Presenting Officer has submitted that the Managerial Remuneration paid to the director subject to the requisite approval of shareholders and Central Government, was mentioned in the Annual Reports for the year ended on 31.03.2017 and 31.03.2018 respectively. However, it is clear that the company and its officers were well aware that they have to take appropriate approval from the Central Government, but they have not obtain the approval at the relevant point of time.
In views of the above it is submitted that the company and its directors in default should be liable for the penalty under the provisions of section 197(15) of the Companies Act, 2013.The adjudicating authority has power under section 454 of the Act r.w. section 197 of the Companies Act, 2013 to impose penalty under section 197(15) of the Companies Act, 213.
8. While adjudging quantum of penalty under section 197(15) of the Companies Act, 2013, the Adjudication Officer shall have due regard to the following factors, namely:
(a) The amount of disproportionate gain or unfair advantage, whenever quantifiable, made as a result of default.
(b) The amount of loss caused to an investor or group of investors as a result of the default.
(c) The repetitive nature of default.
9. With regard to the above factors to be considered while determining the quantum of penalty, it is noted that the disproportionate gain or unfair advantage made by the noticee or loss caused to the investor as a result of the delay on the part of the noticee to redress the investor grievance are not available on the record. Further, it may also be added that it is difficult to quantify the unfair advantage made by the noticee or the loss caused to the investors in a default of this nature.
10. The undersigned considered the submission of the authorized representatives of the company/ Directors and Presenting Officer. Having considering the facts and circumstances of the case and after taking into account the above factors, the undersigned has reasonable cause to believe that the company and its officers have violated the provision of section 197 of the Companies Act, 2013. I hereby imposed penalty on the company and Directors of the Company in default for violation of section 197 of the Companies Act, 2013 as per Table below:-
|Name of the Company /Director||Maximum Penalty||Penalty imposed|
|1.||M/s. Essar Shipping Limited||Rs. 5,00,000/-||Rs. 5,00,000/-|
|2.||Shri Ranjit Singh (CEO) KMP||Rs. 1,00,000/-||Rs. 1,00,000/-|
|3.||Shri Rahul Bhargav (WTD)||Rs. 1,00,000/-||Rs. 1,00,000/-|
11. The noticee shall pay the amount of penalty individually for the company and its directors (out of own pocket) by way of form No. INC-28 of e-payment (available on Ministry Website mac.gov.in) under “Pay miscellaneous fees” category in MCA fee and payment Service within 90 (ninety) days of this order and the Challan/SRN generated after payment of penalty through online mode shall be forwarded to this office along with the copy of form No. INC- 28.
12. Appeal if any, against this order may be filed in writing with the Regional Director, North Western Regional, Ministry of Corporate Affairs, ROC Bhavan, Opp. Rupal Park, Nr. Ankur Bus stand, Naranpura. Ahmedabad (Gujarat) 380 013 within a period of sixty days from the date of receipt of this order, in e-Form ADJ setting forth the grounds of appeal and shall be accompanied by the certified copy of this order. (Section 454 of the Companies Act, 2013 read with the Companies (Adjudicating of Penalties) Rules, 2014 as amended by Companies (Adjudication of Penalties) Amendment Rules, 2019).
13. Please note that as per the provisions of section 454(8)(i) of the Companies Act, 2013, where company does not pay the penalty imposed by the Adjudication officer or the Regional Director within a period of Ninety days (90 days) from the date of the receipt of the copy or order, the company shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakhs rupees. Further as per section 454(8)(ii) of the Companies Act, 2013, where an officer of a company who is in default does not pay the penalty within a period of Ninety days (90 days) from the date of receipt of the copy of the order, such officers 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.
14. Your attention is also invited to section 454(8) of the Companies Act, 2013 in the event of non-compliance of this order which provides that in case of default in payment of penalty, prosecution will be filed u/s. 454(8)(ii) of the Companies Act, 2013 at your own risk, costs and responsibility without any further notice.
The adjudication notice stands disposed of with this order.
(R. C. MISHRA) ICLS
Registrar of Companies,
Gujarat, Dadra and Nagar Haveli.