The Companies Act 2013 under section 454 read with companies (adjudication of penalties) Amendment Rule 2019 provides for adjudication mechanism.
The reason for introduction of In house Adjudication Mechanism (IAM) is to promote ease of doing business, to reduce the burden of NCLT and special court because the adjudication is handled by bureaucracy, here ROC will be adjudication officer.
In Companies (Amendment) Bill 2020, Companies (Amendment) Act 2019 in various sections fines are recategorized in penalties. The inherent benefit of prescribing civil liabilities (as stated in report of committee to review offence under Companies Act 2013) for procedural lapses as it would remove the requirement of providing mens rea normally associated with criminal trial and hence it will save the time of company and will cost effective too.
Therefore, it will be easier for company to rectify there defaults, pay the penalty and become compliant with law through IAM framework rather than fighting a criminal trial.
Adjudicating officer As per section 454 of companies Act 2013 read with rule 3(1) The Central government (CG) may appoint any of its officer not below the rank of registrar as adjudicating officer for adjudging penalties.
The ROC has been shouldered with the responsibility of AO. The ROC can impose penalty in case any non- compliance of provision is made by the company or officer in default (as per 2(60) of Companies Act 2013) ,or any other person.
Now ROC has been given more power he can impose penalty on any person if he was a party in contravention even though is not a part of the company.
It is to be clearly noted ROC can impose penalty in case any non compliance is made by company or officer in default or any other person.
So, the difference between penalty and fine are as follow
| FINE | PENALTY |
| Fine can be imposed after successful prosecution means it is required to be handled by court of judicature
Fine is imposed by NCLT, special court Appeal to NCLAT, higher court Time consuming process More Stringent offence |
No prosecution is required to impose penalty
Penalty is imposed by adjudicating officer. Appeal to RD Not time consuming Comparatively less stringent offence |
Power of Adjudication Officer As per 3(10) Companies (Adjudication of Penalties) Amendment, rule 2019 the adjudicating officer shall exercise the following power
(a) To summon and enforce the attendance of the person acquainted with the facts and circumstances of the case after recording reason in writing
(b) To order for evidence or to produce any document which in the opinion of AO may be relevant to subject matter.
The Adjudication officer role is confined to only adjudging penalty As per sec 454 read with rule 3(1) of Companies Act 2013 the AO may by order impose penalty on company, officer in default or any other person in case of non-compliance and in rules it is stated that adjudication officer will be appointed for the purpose of adjudging penalty.
The emphasis is on quantum of penalty and the adjudication is not on the merit or demerit of the offence.
The AO will send show cause notice as stated in Rule 3(2) and from the response of defaulting party AO will confirmed existence of non- compliance
The notice issued under sub rule 2 shall clearly indicate the nature of non- compliance or default alleged to have been committed by company, officer in default or any other person – Rule 3(3)
Hence, AO will first confirm that there is non – compliance and then decide 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 investor or creditor as a result of default – stated in Rule 3(12)
Provided that, in no case, the penalty imposed shall be less than the minimum penalty prescribed, if any, under the relevant section of the act.
Process of Adjudication (brief)
i. The AO shall issues show cause notice to company, officer in default, any other person to show cause within not less than 15 days and not extending more than 30 days why penalty should not impose.
ii. The reply notice shall be filed in electronic mode
iii. AO can extend for further 15 days if he satisfied that there is sufficient cause of not responding.
iv. If AO is of the opinion that physical appearance is required then he shall issues notice within 10 working days from the date of receipt of reply
v. The person to whom notice is issues can also make oral representation if he has already mentioned in his reply
vi. After giving reasonable opportunity of being heard AO can pass order he think fit including order of adjournment
vii. The AO shall pass order after expiry of last date of submission of reply
– In case of physical appearance not required within 30 days
– In case physical appearance required within 90 days
viii. If any delay is made in passing order by AO the reason of delay is recorded and order of AO shall be valid.
ix The AO shall send a copy of order to company, officer in default , or any other person or all of them and to the CG and copy of order shall be uploaded in website
x In case any person did not reply or appear before AO , the AO may pass an order imposing penalty in absence of such person.
Appeal
As per sec 454(5) any person aggrieved by the order of AO may prefer appeal to regional director(RD) having jurisdiction in the matter.
Every appeal shall be filed within 60 days from the date copy of adjudication order is received by aggrieved person.
Compliance of Default
Under section 454(8) of companies Act 2013 punishment is prescribed in respect of company or officer in default or any other person where penalty imposed by AO or RD remain unpaid.
As of now the section does not require AO to give any other direction beside imposition of penalty but now as per Companies(Amendment) Act 2019 AO by order direct company or officer in default or any other person to as the case may be to rectify default whenever he considered fit. It is necessary because intension is not only to impose penalty but also to ensure compliance.
In case of repeated default
As per section 454A (newly inserted) it is similar to sec 451. Where a company, or an officer in default or any other person having already subjected to penalty for default again commit such default within a period of 3 years from the date of order of imposing penalty passed by AO or RD as the case may be shall be liable for second or subsequent default for an amount equal to twice the amount of penalty.
(Article is Co Authored by ACS Shubham Budhiraja who is also a Final year law student and he can be reached for suggestions on his email ID ShubhamBudhiraja02@gmail.com)
Author Bio
A sec 8 company violated provision of sec 196(3)(a) of CA2013 by appointing a person more than 70 years as MD despite objection from a Member during the election process of appointment. No special or ordinary resolution passed by company before appointment. Complaints lodged with ROC before the final appointment and without replying to the show cause notice issued by ROC. What are the consequences of this violation of sec 196(3)(a) and what are authority and obligation of ROC against the deliberate violation of sec 196(3)(a)
Sir,
Please answer my 2 doubts.
1. How many days delay in filing their returns will the company have to undergo adjudication procedures?
2. Is the Adjudication officer calculates the penanlty as specified in Section 92(5), 137(2) and Rules Table of fees Appendix H ? Or the AO has any descriminatory power?
As per explained above , the penalty can not be less than minimum penalty as prescribed under the relevant Act , than is there any relevance of point (a) to (g) above .
Very informative, 😇🤩🤩