Penalty imposed by ROC, NCT of Delhi & Haryana pursuant to non-compliance of Section 89 of the Companies Act, 2013 by a Wholly Owned Subsidiary Company
Introduction: In a recent order, ROC, NCT of Delhi & Haryana has levied significant penalties on Mynd Fintech Private Limited and its directors for non-compliance with Section 89 of the Companies Act, 2013 . This article delves into the details of the case and explores the legal implications.
Facts of the Case:
1. A Company named Mynd Fintech Private Limited (hereinafter referred as Subject Company) incorporated on 14.01.2021 as a wholly owned subsidiary Company of Mynd Solutions Private Limited (hereinafter referred as holding Company).
2. It was observed by the hon’ble Adjudication Authority from the record that the Company had filed its Annual Return via E-form MGT-7 for the F.Y. 2022-23, wherein it has mentioned that 100% of the shares in the subject Company is held by holding Company. Whereas, to fulfil the requirements of the Act 99.99% of the shares were held in the name of the holding Company & rest 0.1% of the shares were held through its Authorized Representative.
3. Whereas, in response to the show cause notices, the subject Company had submitted a copy of form MGT-4 & MGT-5 received from holding Company & Authorized Representative dated, 27.01.2021 & 27.01.2021 respectively. Further, it is to be noted that in the meantime, the company had filed the e-form MGT-6 with the delay of 975 days on 28.10.2023.
4. As 99.99% of shares were held by holding Company since incorporation and remaining 0.1% shares held through their Authorized Representative, to fulfil the statutory requirement, the Company was under an obligation to file the said E-form MGT-6 within 30 days from the date of receipt of declarations under Section 89 of the Act,
5. Considering the aforesaid facts, circumstances, the Subject Company has violated the provisions of 89(6) of the Act and accordingly the Company & every officer in default are liable for penalty u/s 89(7) of the Act.
The relevant provisions of the Act & Rules:
Section 89. Declaration in Respect of Beneficial Interest in any Share
(1) Where the name of a person is entered in the register of members of a company as the holder of shares in that company but who does not hold the beneficial interest in such shares, such person shall make a declaration within such time and in such form as may be prescribed to the company specifying the name and other particulars of the person who holds the beneficial interest in such shares.
(2) Every person who holds or acquires a beneficial interest in share of a company shall make a declaration to the company specifying the nature of his interest, particulars of the person in whose name the shares stand registered in the books of the company and such other particulars as may be prescribed.
(5) If any person fails to make a declaration as required under sub-section (1) or sub-section (2) or sub-section (3), he shall be liable to a penalty of fifty thousand rupees and in case of continuing failure, with a further penalty of two hundred rupees for each day after the first during which such failure continues, subject to a maximum of five lakh rupees.
(6) Where any declaration under this section is made to a company, the company shall make a note of such declaration in the register concerned and shall file, within thirty days from the date of receipt of declaration by it, a return in the prescribed form with the Registrar in respect of such declaration with such fees or additional fees may be prescribed.
(7) If a company, required to file a return under sub-section (6), fails to do so before the expiry of the time specified therein, the company and every officer of the company who is in default shall be liable to a penalty of one thousand rupees for each day during which such failure continues, subject to a maximum of five lakh rupees in the case of a company and two lakh rupees in case of an officer who is in default.
Rule 9. Declaration in Respect of Beneficial Interest in Any Shares
(1) person whose name is entered in the register of members of a company as the holder of shares in that company but who does not hold the beneficial interest in such shares (hereinafter referred to as “the registered owner”), shall file with the company, a declaration to that effect in Form No.MGT-4, within a period of thirty days from the date on which his name is entered in the register of members of such company:
Provided that where any change occurs in the beneficial interest in such shares, the registered owner shall, within a period of thirty days from the date of such change, make a declaration of such change to the company in Form No.MGT-4.
(2) Every person holding and exempted from furnishing declaration or acquiring a beneficial interest in shares of a company not registered in his name (hereinafter referred to as “the beneficial owner”) shall file with the company, a declaration disclosing such interest in Form No. MGT-5, within thirty days after acquiring such beneficial interest in the shares of the company:
Provided that where any change occurs in the beneficial interest in such shares, the beneficial owner shall, within a period of thirty days from the date of such change, make a declaration of such change to the company in Form No. MGT-5.
(3) Where any declaration under section 89 is received by the company, the company shall make a note of such declaration in the register of members and shall file, within a period of thirty days from the date of receipt of declaration by it, a return in Form No. MGT-6 with the Registrar in respect of such declaration with fee.
Provided that nothing contained in this rule shall apply in relation to a trust which is created, to set up a Mutual Fund or Venture Capital Fund or such other fund as may be approved by the Securities and Exchange Board of India.
Conclusion: In the compliance of Section 89 of the Act, there is a lot of grey area & confusion between the professionals, thus, via this order the hon’ble ROC has made clear about the compliance of Section 89 by a wholly owned subsidiary Companies.
Thus, we should timely comply with Section 89 and also include this compliance in the list of post-incorporation compliance of a wholly owned subsidiary Company or where takeovers by way of transfers were held between body corporates.