Penalty imposed for Non-Disclosure of Director Interests under Section 184(1)

Order under Section 454: Penalty for Non-Disclosure by Directors of Hind Woollen & Hosiery Mills Pvt Ltd

In a recent order dated November 27, 2024, the Ministry of Corporate Affairs (MCA), through its office of the Registrar of Companies, Chandigarh, imposed penalties on the directors of Hind Woollen and Hosiery Mills Private Limited for failing to comply with Section 184(1) of the Companies Act, 2013. This order was issued under the provisions of the Companies (Adjudication of Penalties) Rules, 2014, following an inquiry under Section 206(4) of the Companies Act.

Company Overview

Hind Woollen and Hosiery Mills Pvt Ltd, a small company incorporated on March 31, 1970, is registered under the Companies Act, 1956, and is located in Ludhiana, Punjab. As per the latest audited financial statements as of March 31, 2023, the company has a paid-up capital of Rs. 24,00,000 and a turnover of Rs. 12,80,750. The company does not have any subsidiaries or holding companies and is classified as a “small company” under the Act.

Legal Provisions in Focus

The case pertains to the violation of Section 184(1) of the Companies Act, 2013, which mandates that every director disclose their interest in any company, body corporate, firm, or other association at the first board meeting of each financial year, as well as any changes thereafter. The requirement also extends to sharing details of their shareholding in such entities. This disclosure must be made in the prescribed format, known as Form MBP-1.

According to Section 184(4), any director who fails to disclose their interest or concern as required is liable to a penalty of Rs. 1 lakh. The penalty may be reduced in the case of small companies under Section 446B of the Act.

Violation Details

During the inquiry, it was found that the directors of Hind Woollen and Hosiery Mills Pvt Ltd had failed to disclose their interest or concern in companies or bodies corporate, including their shareholding, in the first board meetings of the financial years 2020-21 and 2021-22. The necessary Form MBP-1 was not filed by the directors. Despite being issued a show-cause notice by the Registrar of Companies on November 7, 2024, the company’s directors did not respond or provide any communication regarding the violation.

Penalty Imposed

As a result of this non-compliance, the Adjudicating Officer has imposed a penalty on each of the directors for their failure to disclose the required information in the specified time. The penalties are as follows:

• Sanjay Nayyar: Rs. 50,000 for each year (Total: Rs. 1,00,000 for both years)
• Raghunath Nayyar: Rs. 50,000 for each year (Total: Rs. 1,00,000 for both years)
• Sanjeev Nayyar: Rs. 50,000 for each year (Total: Rs. 1,00,000 for both years)
• Arvind Nayyar: Rs. 50,000 for each year (Total: Rs. 1,00,000 for both years)
• Rajeev Nayyar: Rs. 50,000 for each year (Total: Rs. 1,00,000 for both years)

The penalty has been reduced by 50% under Section 446B of the Act, considering the company’s small size. The final penalty imposed on each director is Rs. 50,000 for each year, amounting to Rs. 1,00,000 for both financial years, with a total penalty of Rs. 5,00,000 for all five directors.

Payment and Appeal Process

The penalty must be paid through the MCA portal, in accordance with the provisions of the Companies (Adjudication of Penalties) (Amendment) Rules, 2019. Directors are required to make the payment within the prescribed time frame and provide intimation to the office of the Registrar of Companies.

If the company or its directors wish to contest the penalty, an appeal may be filed in writing with the Regional Director (Northern Region), Ministry of Corporate Affairs, within 60 days from the receipt of the order. The appeal must be submitted in Form ADJ, along with a certified copy of the order.

Consequences of Non-Payment

Failure to comply with the order within 90 days may result in further penalties. If the company does not make the payment within the specified period, it will face a fine ranging from Rs. 25,000 to Rs. 5,00,000. In the case of default by any officer, the penalty could be imprisonment for up to six months or a fine ranging from Rs. 25,000 to Rs. 1,00,000, or both.

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/ 860 to 865 Dated: 27/11/2024

ORDER UNDER SECTION 454 FOR VIOLATION OF SECTION 184(1) OF THE COMPANIES ACT, 2013, READ WITH COMPANIES (ADJUDICATION OF PENALTIES) RULES, 2014

IN THE MATTER OF M/S HIND WOOLLEN AND HOSIERY MILLS PRIVATE LIMITED (CIN: U18101PB1970PTC002921)

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 adjudging penalties under the provisions of this Act.

2. Company: ‑

Whereas the Company M/s Hind Woollen And Hosiery Mills Private 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 A-6, Phase V Focal Point, Ludhiana, Punjab,141010, India. As per data available at MCA website, the other details as on 31.03.2023 are as under:

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

(i) Provisions of Section 184(1) of the Companies Act, 2013 :

“(1) Every director shall at the first meeting of the Board in which he participates as a director and thereafter at the first meeting of the Board in every_, financial year or whenever there is any change in the disclosures already made, then at the first Board meeting held after such change, disclose his concern or interest in any company or companies or bodies corporate, firms, or other association of individuals which shall include the shareholding, in such manner as may be prescribed.”

(ii) Section 184(4) of the Act

“(4) If a director of the company contravenes the provisions of sub-section (1) or sub-section (2), such director shall be liable to a penalty of one lakh rupees.”

(iii) Section 446B of the Act

“Notwithstanding anything contained in this Act, if penalty is payable for non­compliance 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.

Explanation.—For the pit/ poses of this section‑

(a) “Producer Company” means a company as defined in clause (1) of section 378A;

(b) “start-up company” means a private company incorporated under this Act or under the Companies Act, 1956 and recognised as start-up in accordance with the notification issued by the Central Government in the Department for Promotion of Industry and Internal Trade.”

4. 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.”

(ii) 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.”

5. Facts about the case: ‑

That inquiry under Section 206(4) of the Companies Act, 2013 was conducted against M/s Hind Woollen And Hosiery Mills Private Limited and during inquiry proceedings it was found that the directors of the company have not disclosed their interest or concern in companies or bodies corporate or firms or association of individuals including their shareholding at the first meeting of the Board held in FY 2020-21 & 2021-2022 as required by Section 184 (1) of the Companies Act, 2013 and the relevant Form MBP-1 has not been filed by the directors. This office had issued Show Cause Notice for violation of section 184(1) of the Companies Act, 2013 read with Companies (Adjudication of Penalties) Rules, 2014 to its directors vide this office letter No. /CH/Lega1/783 to 787 dated 07.11.2024. But no reply or communication has been received to such show cause notice sent to its directors .

6. Adjudication of penalty:

Therefore, it is concluded that the officers in default are liable for penalty as prescribed under Section 184(4) of the Companies Act, 2013. Accordingly, after having considered the facts and circumstances of the case, I am inclined to impose a penalty as prescribed under sub-section (4) of Section 184 of the Companies Act, 2013. The details of the penalty imposed on the directors arc as under:

I am of this opinion that penalty is commensurate with the aforesaid failure committed by the Noticees 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.

7. 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].

8. 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.

9. 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/860 to 865 

                Dated: 27/11/2024