Public limited Company fined ₹7 Lakh for Not Appointing Independent Directors

On April 30, 2024, the Ministry of Corporate Affairs (MCA) issued an adjudication order penalizing Best & Crompton Engineering Projects Limited for failing to appoint independent directors, as mandated under Section 149(4) of the Companies Act, 2013.

The Registrar of Companies (RoC), Chennai, was appointed as the Adjudicating Officer by the MCA through Gazette Notification No. A-42011/112/2014-Ad.II dated March 24, 2015. This appointment, under Section 454(1) of the Companies Act, 2013, empowered the RoC to adjudge penalties for violations under the Act.

Best & Crompton Engineering Projects Limited, registered under CIN U28920TN1999PLC043385, operates from its registered office at No. 19A, Emerald Apartments, Flat No. 4, First Floor, Wheat Crofts Road, Nungambakkam, Chennai, Tamil Nadu. As per MCA-21 records, the company has an active status, with a paid-up capital of Rs. 55,99,23,660 as of the fiscal year 2021-22.

The directors during the period of violation included Ravi Narayanasamy Balachandran (Whole-time Director), Kakulamaari Srinivas Kalyan Rao (Managing Director), Seshagiri Rao Ippagunta (CEO, KMP), and Amulvil Krishnaswamy Rangarajan (CFO, KMP).

Under Section 149(4) of the Companies Act, 2013, and Rule 4(1)(i) of the Companies (Appointment and Qualification of Directors) Rules, 2014, every listed public company must have at least one-third of its board as independent directors. Best & Crompton failed to comply with this requirement from April 1, 2014, onwards.

Section 172 of the Companies Act, 2013, specifies penalties for non-compliance with provisions that lack specific penalties. The penalty for non-compliance can reach up to Rs. 3 lakh for companies and Rs. 1 lakh for individual officers in default.

An inspection under Section 206(5) of the Companies Act, 2013, revealed that Best & Crompton had not appointed any independent directors since April 1, 2014, despite having a paid-up capital exceeding Rs. 10 crore. This non-compliance led to the issuance of an adjudication notice to the company and its officers.

In response to the adjudication notice, the company and its officers filed an adjudication application in e-form GNL-1 and a physical application. During the adjudication hearing, the company’s representative, Mr. Rohan Rajasekaran, contended that independent directors were previously appointed but had since resigned, and the company struggled to find suitable replacements.

Adjudication Decision

After considering the facts, the Adjudicating Officer imposed penalties under Section 172 of the Companies Act, 2013. The penalties levied were as follows:

• Company: Rs. 3,00,000
• Ravi Narayanasamy Balachandran: Rs. 1,00,000
• Kakulamaari Srinivas Kalyan Rao: Rs. 1,00,000
• Seshagiri Rao Ippagunta: Rs. 1,00,000
• Amulvil Krishnaswamy Rangarajan: Rs. 1,00,000

In total, a penalty of Rs. 7,00,000 was imposed for the violation of Section 149(4).

In addition to the penalties, the company was directed to rectify the default by appointing independent directors within 30 days of the order and to provide proof of compliance to the MCA.

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GOVERNMENT OF INDIA
MINISTRY OF CORPORATE AFFAIRS
OFFICE OF REGISTRAR OF COMPANIES, TAMIL NADU, ANDAMAN & NICOBAR ISLANDS, CHENNAI
II FLOOR, C- WING, SHASTRI BHAVAN, 26, HADDOWS ROAD, NUNGAMBAKKAM, CHENNAI- 6

F.NO.ROC/CHN/BEST & CROMPTON /ADJ/S.149(4)/2024 DATE: 3 0 APR 2024

ADJUDICATION ORDER UNDER SECTION 149(4) OF THE COMPANIES ACT, 2013 READ WITH RULE 4 (1)(i) OF THE COMPANIES (APPOINTMENT AND QUALIFICATION OF DIRECTORS), RULES 2014 IN THE MATTER OF M/S BEST & CROMPTON ENGINEERING PROTECTS LIMITED

Public Limited Company not appointed Independent Directors: MCA imposes penalty of Rs. 7 Lakh

1. Appointment of Adjudicating Officer:–

The Ministry of Corporate Affairs vide its Gazette Notification No. A-42011/112/2014-Ad.II, dated 24.03.2015 has appointed Registrar of Companies, Chennai as Adjudicating Officer in exercise of the powers conferred by section 454(1) of the Companies Act, 2013 (hereinafter referred as Act or Companies Act, 2013) r/w Companies (Adjudication of Penalties) Rules, 2014 for adjudging penalties under the provisions of this Act.

2. Company: –

Whereas the company viz M/s. Best & Crompton Engineering Projects Limited with CIN U28920TN1999PLC043385 (herein after referred as ‘ company’ or ‘ subject company’) is a registered company with this office under the Companies Act, 2013 having its registered office as per MCA21 Registry at No. 19A, Emerald Apartments, Flat No. 4, First Floor, Wheat crofts Road, Nungambakkam, Chennai, Tamil Nadu 600034. The financial & other details of the subject company as available on MCA-21 portal is stated as under:

3. Directors during the period of violation

4. Section and Penal Provision as per Companies Act, 2013

Section 149. Company to have Board of Directors :

(1) Every company shall have a Board of Directors consisting of individuals as Directors and shall have—

(a) a minimum number of three Directors in the case of a public company, two Directors in the case of a private company, and one director in the case of a One Person Company; and

(b) a maximum of fifteen Directors:

Provided that a company may appoint more than fifteen Directors after passing a special resolution:

Provided further that such class or classes of companies as may be prescribed, shall have at least one woman director.

(2) Every company existing on or before the date of commencement of this Act shall within one year from such commencement comply with the requirements of the provisions of sub-section (1).

(3) Every company shall have at least one director who has stayed in India for a total period of not less than one hundred and eighty-two days during the financial year: Provided that in case of a newly incorporated company the requirement under this sub­section shall apply proportionately at the end of the financial year in which it is incorporated.

(4) Every listed public company shall have at least one-third of the total number of Directors as independent Directors and the Central Government may prescribe the minimum number of independent Directors in case of any class or classes of public companies.

Rule 4 (1)(i) of Companies (Appointment and Qualification of Directors), Rules, 2014: Number of Independent Directors:

(1) The following class or classes of companies shall have at least two directors as independent directors –

(i) the Public Companies having paid up share capital of ten crore rupees or more;

Section 172 — Penalty:

“If a company is in default in complying with any of the provisions of this Chapter and for which no specific penalty or punishment is provided therein, the company and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees, and in case of continuing failure, with a further penalty of five hundred rupees for each day during which such failure continues, subject to a maximum of three lakh rupees in case of a company and one lakh rupees in case of an officer who is in default.”

5. Issue of Adjudication Notice:

An Inspection of Books and Accounts of the company M/s. Best & Crompton Engineering Projects Limited was carried out U/s 206(5) of the Companies Act, 2013 by an Officer authorized by the Central Government wherein the observations of the Inspecting Officer are as follows:

It is observed from the e-forms and books of accounts that the company being a Public Limited company with Rs.55.99 Crores of Paid-up Capital, shall have two Independent Directors, but it has not appointed any Independent Directors since 01.04.2014. This is a violation of Section 149(4) read with Rule 4(1)(i) of the Companies (Appointment and Qualification of Directors), Rules 2014 and hence the Company and every Officer of the company who is in default are liable for penal action under Section 172 of the Companies Act, 2013. Further, the Inspecting Officer reported that the company has admitted the violation of provision of Section 149(4) of the Companies Act, 2013.

Accordingly, on submission of the Inspection Report by the Inspecting Officer, the Ministry vide letter dated 10.04.2023 has directed this Office to take necessary action against the defaulters of the company as per provisions of the Companies Act, 2013.

After that the Adjudicating Authority has issued Adjudication Notice to the company and its directors vide Notice No. ROC/CHN/INSPN.FOLL/43385/P.13/S.149/2021/2023 dated 31.05.2023.

6. Reply of Company and Directors for Adjudication Notice issued:

Pursuant to the Adjudication notice, the company, and Directors/ Officers namely Shri. Seshagiri Rao Ippagunta, Shri. Ravi Narayanasamy Balachandran, Shri. Kakulamaari Srinivas Kalyan Rao and Shri. Amuvil Krishnaswamy Rangarajan have filed an Adjudication application in eform GNL-1 vide SRN: F62903018 dated 04.08.2023 and submitted a physical application on 28.08.2023.

7. Adjudication Hearing:

On receipt of the Adjudication application form the company and its Officers in default, the Adjudicating Authority had issued notice of Hearing dated 14.02.2024 by fixing the hearing on 20.02.2024 at 01:45 PM. Pursuant to the said notice, Mr. Rohan Rajasekaran, Advocate has appeared on behalf of the company and its director/ Officers in default before the Adjudicating Authority on 20.020.2024 and made submissions that the Board was properly constituted with Independent director before 2014. Thereafter due to various reasons the Independent directors were returned. The remaining Board of Directors could not identify suitable Independent directors and appointed.

(ii) The company being a subsidiary with paid up capital of Rs.55 Crores does not fall under the definition of small company as per provision of section 2(85) of the companies Act, 2013. Therefore, of imposing the provision lesser penalty as per section 446(b) shall not be applicable in this case.

8. Decision

Having considered the facts and circumstances of the case and after taking into account the factors above, it is concluded that applicant company and its officers, have violated the provisions of Section 149(4) of the Companies Act,2013 as the company has defaulted in appointment of Independent Directors on the board from 01.04.2014 onwards to till date.

(i) Accordingly, I am inclined to impose a penalty as prescribed under Section 172 of the Companies Act, 2013. The details of the penalty imposed on the company and officers in default are shown in the table below:

Therefore, in view of the above said violation, in exercise of the powers vested to the undersigned under Section 454(1) & (3) of the Companies Act, 2013 a penalty of Rs.3,00,000/- (Rupees Three lakhs) is imposed on the Company and Rs.1,00,000/- (Rupees One lakhs) is imposed on Officers in default as mentioned above. Totally Rs. 7,00,000/-(Rupees Seven lakhs) as penalty amount for violation of Section 149(4) of the Companies Act, 2013.

9. (ii) Further, in exercise of Section 454 (3)(b) of the Companies Act,2013 the subject company is directed to rectify the default by appointing Independent Directors as required U/s. 149 of the Companies Act, 2013 and intimate to this office along with SRNs within 30 days from the date of this order.

10. The said amount of penalty shall be paid through online by using the website mca.gov.in(Misc. head) within 90 days of receipt of this order, and intimate this office with proof of penalty paid.

11. Whereas Appeal against this order may be filed with the Regional Director (SR), Ministry of Corporate Affairs, 5th Floor, Shastri Bhavan, 26 Haddows Road, Chennai-600006, Tamil Nadu within a period of sixty days from the date of receipt of this order, in Form ADJ [available on Ministry website mca.gov.in] 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 (Adjudicating of Penalties) Rules, 2014].

12. Your attention is also invited to section 454(8) of the Act in the event of non-compliance of this order, “(8)(i) Where company fails to comply with the order made under sub­section (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.

(ii) Where an officer of a company or any other person who is in default fails to comply with the order made under sub-section (3) or sub-section (7), as the case may k within a period of ninety days from the date of the receipt of the copy of the order, such officer shall be punishable with imprisonment which may extend to six months or with hi which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees, or with bath.”

(B. SRIKUMAR, ICLS)
REGISTRAR OF COMPANIES
TAMILNADU, CHENNAI.
ADJUDICATING OFFICER