In a significant ruling by the Ministry of Corporate Affairs (MCA), the Regional Director (Western Region), Mumbai, has confirmed a penalty of Rs. 2 lakh imposed on Kudos Finance and Investments Private Limited and its directors. The penalty pertains to non-compliance with the provisions of Section 188 of the Companies Act, 2013, specifically the failure to specify the date of a board meeting in Form AOC-2.
Background of the Case
Kudos Finance and Investments Private Limited, along with its directors, faced an adjudication order from the Registrar of Companies (RoC) Pune for failing to specify the date of the board meeting in Form AOC-2. Form AOC-2 is required to disclose related party transactions as stipulated under Section 188(1)(f) of the Companies Act, 2013. The RoC Pune, in its order dated 09/02/2024, imposed a total penalty of Rs. 2 lakh—Rs. 50,000 each on four directors of the company.
Appeal Details
The company appealed the penalty, arguing several points:
1. Ordinary Course of Business: The company claimed that the transaction with Mr. Pavitra Walvekar was part of regular business operations and did not require board approval.
2. Director’s Status: It was argued that Mr. Walvekar was not a director during the financial year 2020-21, thus not necessitating board meeting details.
3. Handover Issues: The company cited a lack of clear handover between company secretaries as a reason for non-compliance.
4. Error in Order: The appellants contended that the adjudication order was erroneous and failed to consider their explanations adequately.
5. Financial Hardship: They also highlighted their financial struggles, arguing that no non-compliance had occurred on their part.
Despite these arguments, the Regional Director upheld the penalty, stating that the company had indeed violated Section 188(1)(f) by not mentioning the board meeting date in Form AOC-2. The decision was based on the RoC’s observation that the contract with Mr. Walvekar was approved without board authorization, as required.
Examination of Submissions
The Regional Director’s review included:
- Inquiry Findings: The RoC’s investigation confirmed that the related party transaction was conducted without proper board approval.
- Regulatory Compliance: The decision emphasized the necessity for compliance with Section 188 of the Companies Act, which mandates board approval for related party transactions.
- Appeal Review: The appeal was found to be within the 60-day window allowed under Section 454(6), but the Regional Director deemed the arguments insufficient to overturn the original penalty.
Conclusion
The Regional Director’s confirmation of the Rs. 2 lakh penalty highlights the strict enforcement of corporate governance norms under the Companies Act, 2013. Kudos Finance and Investments Private Limited’s failure to specify the board meeting date in Form AOC-2 serves as a cautionary tale for companies to ensure full compliance with regulatory requirements. The ruling underscores the importance of accurate and timely disclosure in maintaining corporate transparency and accountability. The company and its directors are directed to pay the imposed penalty within 90 days or face further legal action under Section 454(8) of the Companies Act.
BEFORE THE REGIONAL DIRECTOR, WESTERN REGION
MINISTRY OF CORPORATE AFFAIRS, MUMBAI
Order No. Kudos Finance/188(1)/F94308145/2023-24/5848
16 JUL 2024
APPEAL UNDER 454(5) OF COMPANIES ACT, 2013 AGAINST ORDER PASSED FOR OFFENCES COMMITTED UNDER SECTION 188 OF THE COMPANIES ACT, 2013.
In the matter of KUDOS FINANCE AND INVESTMENTS PRIVATE LIMITED & ORS
| 1. | Kudos Finance and Investments Private Limited | – Company |
| 2. | Pavitra Pradip Walvekar | Additional Director |
| 3. | Swati Tindal | Director |
| 4. | Naresh Vigh | Director |
| 5. | Audumbar Dattatray Raut | Director |
…Appellants
Through: Anil Kumar Dhanotiya, Practicing Company Secretary.
HON’BLE REGIONAL DIRECTOR (WESTERN REGION)
ORDER
Appeal under sub-Section (5) of Section 454 of the Companies Act, 2013 (Act) r/w the Companies (Adjudication of Penalties) Rules, 2014 (Rules) has been filed h ‘Kudos Finance and Investments Private Limited’ (Company) having CIN
U65910PN2009PTC148795 and, its Officers, against Order No. RoCP ADJ/188/ 23-24/KUDOS/8(i)/B/2846 dated 09/02/2024 (ROC Order) of Registrar of Companies, Pune for violating provisions of Section 188(1)(f) of the Companies Act, 2013.
2. The appeal lies within the jurisdiction of the Regional Director, Western Region, Ministry of Corporate Affairs, Government of India.
3. The Registrar of Companies, Pune (RoC Pune) vide Adjudication Order dated 09/02/2024 imposed penalty under Section 188(5) of the Act for failing to specify the date of board meeting in Form A0C-2 which mentions related party transactions as required under Section 188(1)(f) of the Act:
| Sr.No | Penalty imposed on Company / Director (s) | Penalty imposed (In Rs.) |
| 1 | Pavitra Pradip Walvekar | 50,000 |
| 2 | Swati Jindal | 50,000 |
| 3 | Naresh Vigh | 50,000 |
| 4 | Audumbar Dattatray Raut | 50,000 |
| TOTAL | 2,00,000 |
4. Appellants have filed Form-ADJ vide SRN F94308145 dt.05/04/ 2024. As per provisions of sub-Section (6) of Section 454, every appeal under sub-section (5) shall be filed within sixty (60) days from the date on which the copy of the order made by the adjudicating officer is received by the aggrieved person. On examination of the application/appeal, it is seen that the said application/appeal has been filed within 60 days from the date of passing of the adjudication order.
5. Grounds of Appeal & Relief sought:
a) Since this transaction was in ordinary course of business, the company was not required to comply with this section and pass a board resolution with respect to appointment of Mr. Pavitra Walvekar as consultant. Further, he was not a director of the company during F.Y. 2020-21, hence there was no need of specifying the date of any board meeting for entering into any related party transaction with Mr. Pavitra Walvekar in Form AOC-2. Accordingly, no penalty should be imposed against the company and its officers.
b) Due to lack of clear handover between one Company Secretary to another, this requirement was not brought to the attention of any of the officer.
c) The Learned Respondent (ROC) has acted in a manner which is contrary to well-established norms of dispensing justice.
d) The Order under appeal is erroneous.
e) The Order under appeal has been passed without considering the genuine explanations given by the Appellants(s).
f) The Appellants are unable to generate any income since last 2 years.
g) That no non-compliances have occurred on the part of the Appellant(s).
h) Quash/set aside the Adjudication Order passed by the ROC.
i) Discharge the company and its officers without any cost or penalty to order.
6. The matter was posted for hearing as per Section 454(5) r/ w Section 454(7) of the Act on 02/07/2024. Anil Kumar Dhanotiya, Practicing Company Secretary appeared on behalf of Appellants as their authorized representative. The authorized representative reiterated the submission made by the applicants in their application and requested to reduce the penalty by admitting the default.
7. That the punishment for contravention of section 188(1) is prescribed under section 188(5) of the Companies Act, 2013 which states that “Any director or any other employee of a company, who had entered into or authorised the contract or arrangement in violation of the provisions of this section shall, —
(i) in case of listed company, he liable to a penalty of twenty- five lakh rupees and
(ii) in case of any other company, be liable to a penalty of five 1(101 rupees.”
8. Facts of the Case:
a) An inquiry was conducted by the Inspecting Officer (10) and during the inquiry, it was observed that as per Annexure to Director’s Report for I.Y. 2020-21 contains AOC-2, which mentions related party transaction with Pavitra Walvekar (CEO). However, the date of board meeting approving such transaction is not mentioned. Thus, it is clearly established that the contract was entered into by the company with the Pavitra Walvekar (CFC)) without the approval of the Board. Hence, the company has violated Section 188(1)(f) and is liable for action under Section 188(5) of the Act.
9. ROC vide his further report dt.01/07/2024 has stated that:
(i) Mr. Pavitra Pradip Walvekar was related party in the company as the company itself has declared Mr. Pavitra Pradip Walvekar as related party in form AOC-2.
(ii) The company has submitted in its appeal that Mr. Pavitra Walvekar was appointed as the Consultant with designation allotted as CEO of the Company and accordingly has been paid the consultancy fee by the company.
Hence, the provisions of Section 188 are applicable and such appointment needs to be approved by the Board of Directors which the company has failed to do and accordingly submission made by the company in its appeal is not tenable.
9. Taking into consideration the Adjudication Order of the Registrar of Companies, Pune; submissions made by the Appellants in their application, oral submissions of authorized representative during the hearing and further report of ROC dt.01/07/2024; I am of the considered view that there is no inherent defect in the Adjudication Order dt. 09/02/2024 and the same is in accordance with the provisions of the Act, and hence, the Adjudication Order dated 09/02/2024 passed by ROC, Pune is ‘Confirmed’.
10. In view of the above, the present appeal is dismissed with directions to the appellants to pay penalty imposed by the Registrar of Companies, Pune vide Adjudication Order dt. 09/02/2024 within 90 days, failing which, Registrar of Companies, Pune, is directed to file prosecution under Section 454(8) of the Companies Act, 2013.
A copy of this order shall be published on the website of the Ministry of Corporate Affairs as per Rules.
Signed and sealed on 16th day of July 2024.
(SANTOSH KUMAR)
REGIONAL DIRECTOR
WESTERN REGION, MUMBAI
