As you all know, Ministry of Corporate Affairs created AI based system called “Compliance Monitoring System” which will automatically track certain non-compliances based on various filings done by the corporates. Many companies started receiving show cause notice (SCN) since 4th of November, 2019 regarding violation of Section 96 i.e Annual General Meeting and Section 204 i.e Secretarial Audit Report. Fundamental question that asked by all is How to reply/respond to the show cause notice received from ROC/MCA/CMS? Before going to how to reply, let’s understand some basics.
Why Show Cause Notice?
As per Section 96 of the Companies Act: Every company other than a OPC shall in each year hold in addition to any other meetings, a general meeting as its annual general meeting and shall specify the meeting as such in the notices calling it, and not more than 15 months shall elapse between the date of one annual general meeting of a company and that of the next. Provided that in case of the first annual general meeting, it shall be held within a period of 9 months from the date of closing of the first financial year of the company and in any other case, within a period of 6 months, from the date of closing of the financial year.
Now, there are following 2 probabilities for getting notice for violation of Section 96:
1. You exceeded specified timeline of 9 months or 6 months from the closure of financial year or
2. The gap between 2 AGM exceeded 15 months.
How MCA come to know your AGM dates and violation?
MCA comes to know your AGM dates through filings done in AOC-4 and MGT-7. New launched AI based system tracks dates from your e-forms and if there is violation, it will automatically send notice on your company’s email id.
What exactly SCN tells?
SCN is a system generated notice sent on company’s email of which is registered with the MCA. Notice contains its unique number, date & time, non-compliant section, provisions of that section and among other things.
SCN also provides 15 days time to give reply to the SCN through MCA CMS portal. If company fails to give reply within 15 days, Registrar of Companies will initiate penal action against the company.
Further, it is the duty of the company to give SCN to all its Directors, KMP etc. Delivering SCN though e-mail will be treated as deemed to have been served upon every officer in default of the company in terms 20 of the Companies Act, 2013
What to reply for Violation of Section 96?
Check first what the exactly non-compliance is? If you really failed to conduct an AGM on timeline, your reply should contain acceptance of non-compliance and prayer for imposing low penalty due to small size of the company, nothing loss to the shareholders and general public, no repetitive nature of non-compliance etc. etc.
There are chances that you conducted an AGM within due date but you have mentioned wrong AGM date in e-forms AOC-4 or MGT-7 which give rise to issuance of SCN. In that case, your reply categorically deny the non-compliance of Section 96 but you should accept mistake done in filing e-forms and prayer should contain no penalty as AGM was held within due date. You might get order to amend both the e-forms with correct date of AGM.
In reply, you should contain clause that ‘Opportunity of being heard personally must be provided before passing any order or imposing any penalty’.
Please note that CMS portal is not accepting e-forms. If you want to attach e-form as a proof, you need to first print it out, scan and then attach.
What after submission of Reply?
If company desires to make an oral representation through its authorized representative, it must indicate the same while submitting its reply in electronic mode. The adjudicating officer shall allow such person to make such representation after fixing a date of appearance.
If, after considering the reply submitted by company, the adjudicating officer is of the opinion that physical appearance is required, he shall issue a notice, within a period of 10 working days from the date of receipt of reply, fixing a date for the appearance of such company, through its authorized representative.
Powers of Adjudicating Officer
The adjudicating officer shall exercise the following powers, namely:-
(a) to summon and enforce the attendance of any person acquainted with the facts and circumstances of the case after recording reasons in writing;
(b) to order for evidence or to produce any document, which in the opinion of the adjudicating officer, may be relevant to the subject matter.
What if person fails to reply or appear
If any person fails to reply or neglects or refuses to appear before the adjudicating officer, the adjudicating officer may pass an order imposing the penalty, in the absence of such person after recording the reasons for doing so.
Passing of Order
The adjudicating officer shall pass an order within 90 days of the date of issue of notice where any person appeared before the adjudicating officer. In case an order is passed after the aforementioned duration, the reasons of the delay shall be recorded by the adjudicating officer and no such order shall be invalid merely because of its passing after the expiry of period.
The adjudicating officer shall send a copy of the order passed by him to the concerned company, officer who is in default or any other person or all of them and to the Central Government and a copy of the order shall also be uploaded on the website.
Quantum of Penalty
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:
The penalty imposed shall be less than the minimum penalty prescribed if any, under the relevant section of the Act. 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.
Payment of Penalty
Penalty shall be paid through Ministry of Corporate Affairs portal only. All sums realized by way of penalties under the Act shall be credited to the Consolidated Fund of India.
Appeal against the order of Adjudicating Authority
Company can file appeal against the order of the adjudicating officer in writing with the Regional Director having jurisdiction in the matter within a period of 60 days from the date of receipt of the order of in Form ADJ setting forth the grounds of appeal and shall be accompanied by a certified copy of the order against which the appeal is sought.
On the receipt of an appeal, office of the Regional Director shall endorse the date on such appeal and shall sign such endorsement. If, on scrutiny, the appeal is found to be in order, it shall be duly registered and given a serial number.
On the admission of the appeal, the Regional Director shall serve a copy of appeal upon the adjudicating officer against whose order the appeal is sought along-with a notice requiring such adjudicating officer to file his reply within 21 days.
A copy of every reply, application or written representation filed by the adjudicating officer before the Regional Director shall be forthwith served on the appellant by the adjudicating officer.
The Regional Director shall notify the parties, the date of hearing of the appeal which shall not be a date earlier than thirty days following the date of such notification for hearing of the appeal.
On the date fixed for hearing the Regional Director may, subject to the reasons to be recorded in writing, pass any order as he thinks fit including an order for adjournment of the hearing to a future date.
In case the appellant or the adjudicating officer does not appear on the date fixed for hearing, the Regional Director may dispose of the appeal ex-parte. Provided that where the appellant appears afterwards and satisfies the Regional Director that there was sufficient cause for his nonappearance, the Regional Director may make an order setting aside the ex-parte order and restore the appeal.
A certified copy of every order passed by the Regional Director shall be communicated to the adjudicating officer, to the appellant and to the Central Government.