Section 4 of the 2013 Companies Act, in conjunction with Section 10, establishes that a company’s memorandum must outline its intended objectives and other relevant information. However, many companies registered with the Ministry of Corporate Affairs fail to comply with this requirement.
Many companies registered with the Ministry of Corporate Affairs fail to comply with the requirement of declaring the objects and related topics in the object clause of the memorandum of association.
Appreciating Move by a Company for Maintaining Corporate Governance:
Regaal Resources Ltd. has voluntarily submitted an application regarding the terms of Section 4 read with Section 10 of the 2013 Companies Act. This article discusses one such order issued in this matter.
“Adjudication Order in the Matter of Regaal Resources Limited”
I. FACTS OF THE CASE:
a. Regaal Resources Limited was established on 02.03.2012, and on 16.02.2015, the company changed its primary objective to include the business of fine chemicals. The company subsequently started its starch manufacturing facilities, commencing starch production in September 2018.
b. On 10.02.2020, the company further changed its primary objective, specifically incorporating the starch industry.
c. The company admits that it operated its starch business in violation of the provisions of its Memorandum of Association (MOA) during the years 2018-19 and 2019-20.
d. Based on the above, it is evident that the aforementioned provision has been prima facie violated, and as a result, the company and its directors are subject to penalties under Section 450 of the Companies Act 2013. The penalty is applicable from February 16, 2015, to February 9, 2020.
As per Section 450 of the Companies Act 2013, if a company or any officer contravenes any provision of the Act, they shall be liable to a penalty of ten thousand rupees. In case of continuing contravention, a further penalty of one thousand rupees per day may be imposed, subject to a maximum of two lakh rupees for a company and fifty thousand rupees for an officer who is in default.
As per the section of 450 of companies act 2013 If a company or any officer of a company or any other person contravenes any of the provisions of this Act or the rules made thereunder, or any condition, limitation or restriction subject to which any approval, sanction, consent, confirmation, recognition, direction or exemption in relation to any matter has been accorded, given or granted, and for which no penalty or punishment is provided elsewhere in this Act, the company and every officer of the company who is in default or such other person shall be liable to a penalty of ten thousand rupees, and in case of continuing contravention, with a further penalty of one thousand rupees for each day after the first during which the contravention continues, subject to a maximum of two lakh rupees in case of a company and fifty thousand rupees in case of an officer who is in default or any other person.
According to Rule 3(12) of the Companies (Adjudication of Penalties) Rules, 2014, the Registrar of Companies, Kolkata has levied a total penalty of Rs. 350,000, taking into account the relevant criteria. This penalty consists of Rs. 200,000 against the company and Rs. 50,000 against each 3 officer in violation.
Conclusion: It is evident that a significant number of companies registered with the Ministry of Corporate Affairs are not fulfilling the obligation of disclosing the objects and related topics in the object clause of the memorandum of association. This noncompliance raises concerns about transparency and adherence to corporate governance principles. It is crucial for companies to adhere to legal requirements and ensure proper disclosure in order to maintain credibility and meet regulatory standards. Compliance with the Companies Act and related regulations is essential for the smooth functioning and reputation of companies in the corporate landscape.
Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES, Company Secretary in Practice from Delhi, can be contacted at email@example.com.