The Registrar of Companies (ROC) in Delhi has recently imposed penalties on a company, including its Independent Directors (ID) and Non-Executive Directors (NED), for violations related to the Corporate Social Responsibility (CSR) provisions under Section 135(5) of the Companies Act, 2013. The case involves the company’s failure to spend the required amount on CSR activities as mandated by the law.
Background:
The company, along with its Key Management Personnel (KMP) and Board of Directors (BOD), filed a voluntary application on July 26, 2022, admitting non-compliance with Section 135(5) of the Act for the fiscal year 2020-21. The company was supposed to transfer an unspent amount of Rs. 5,50,122/- to the specified fund within six months from the end of the financial year, i.e., by September 30, 2021. However, their attempt to transfer the amount to the PM National Relief Fund on April 22, 2021, failed, resulting in a default. The default was rectified by depositing the unspent amount on March 30, 2022.
Penalties and Appeal:
The ROC imposed penalties on the company, KMP, ID, and NED for the non-compliance. The company appealed to the Regional Director (RD), seeking exoneration of all directors from being considered as defaulting officers. They argued that the directors held non-executive/independent positions and should be exempted. However, the matter was referred for de novo adjudication.
ROC’s Decision and Reasoning:
The ROC rejected the company’s argument to exempt directors based on their non-executive/independent positions. They emphasized the following points:
1. The responsibility to comply with CSR provisions lies with the Board, which includes all directors, regardless of their roles.
2. The Ministry’s FAQs highlight that CSR is a Board-driven process.
3. The CSR Committee, responsible for overseeing CSR activities, comprises both ID and NED.
4. Annual Return on CSR is signed by Whole Time Directors (WTD) and ID, indicating their involvement in the process.
5. The Board Report, which includes CSR disclosures, is signed by NED, underscoring their responsibility.
6. Form CSR-2, used for reporting CSR activities, is digitally signed by NED.
Interpretation of Section 2(60):
The ROC clarified that the interpretation of Section 2(60) of the Act, which defines an officer-in-default, should consider the context. While Section 2(60) is applicable when the relevant provision does not identify the officer-in-default, specific provisions identifying the officers prevail over the general definition in Section 2(60).
Conclusion:
The imposition of penalties on the company, including ID and NED, by the ROC for the violation of CSR obligations highlights the importance of complying with the provisions of Section 135(5) of the Companies Act, 2013. The decision underlines the accountability of the Board, encompassing all directors, in ensuring proper utilization of CSR funds and meeting statutory obligations.
GOVERNMENT OF INDIA
MINISTRY OF CORPORATE AFFAIRS,
OFFICE OF REGISTRAR OF COMPANIES,
NCT OF DELHI & HARYANA
4TH FLOOR, IFCI TOWER, 61, NEHRU PLACE,
NEW DELHI -110019
ORDER OF PENALTY PURSUANT TO SECTION 135 OF THE COMPANIES ACT, 2013 IN THE MATTER OF ADJUDICATION OF COMVIVA TECHNOLOGIES LIMITED (U72200HR1999PLC041214)
1 Appointment of Adjudicating Officer:
Ministry of Corporate Affairs vide its Gazette Notification No. A-42011/112/2014-Ad.11, dated 24.03.2015 (See SO 831(E), dated 24.03.2015) appointed undersigned as Adjudicating Officer in exercise of the powers conferred by section 454(1) of the Companies Act, 2013 (herein after known as Act) r/w Companies (Adjudication of Penalties) Rules, 2014 for adjudging penalties under the provisions of this Act.
2. Company: –
Comviva Technologies Limited (herein after known as ‘company’) registered under the Companies Act, 1956 having its registered office at 5th, 7th & 8th Floor, Capital Cyberscape, Sector-59, Golf Course, Extension Road, Gurgaon HR 122102. The financial & other details of the subject company for immediately preceding F.Y. as available on MCA-21 portal is stated as under:
| S. No. | Particulars | Details |
| 1. | Paid up capital (in Millions of INR) | 218.69 |
| 2. | a. Revenue from operation (in Millions of INR) | 8,761 |
| b. Other Income (in Millions of INR) | 253 | |
| c. Profit for the Period (in Millions of INR) | 1707 | |
| 3. | Holding Company | YES |
| 4. | Subsidiary Company | YES |
| 5. | Whether company registered under Section 8 of the Act? | NO |
| 6. | Whether company registered under any other special Act? | NO |
3. Facts of the Case: –
I. A suo-moto application dated 26.07.2022 was filed by company, its KMP and Board of directors (including independent directors and non- executive directors) wherein they had admitted non-compliance of Section 135(5) of the Act for the FY 2020-21. In the application, it was inter alia stated that company had an unspent amount of Rs, 5,50,122/- which had to be transferred within six months of the end of the financial year i.e 31st March 2021 to the fund specified in Schedule VII of the Act in compliance of the Section 135 (5). While, the subject company transferred such unspent amount of Rs. 5,50,122 to the PM National Relief Fund on 22nd April 2021, due to some technical error, the said amount bounced back into applicant Company’s Bank account on the same day and the same remained unnoticed to the officers of the Applicant Company and accordingly there was default on part of company. Further, the default was made good by the company and its officers by depositing unspent amount of Rs, 5,50,122/. to the Prime Minister’s National Relief Fund on March 30, 2022.
II. That in terms of application submitted for Adjudication, the Adjudicating Officer (Registrar of Companies NCT of Delhi & Haryana) issued an SCN vide letter no. ROC/D/Adj/2022/Section 135/Comviva/5472-5480 dated 7th September 2022. The subject company submitted its reply vide email dated 16th Sep 2022 wherein once again it was admitted that all the applicants are officer in default. Taking into account the application and subsequent submissions, an order for Adjudication of Penalty was passed vide Order no. ROC/D/Adj Order/Section 135/Comviva/5702-5710 dated 27th September 2022 on the company and all the applicants are as under:
| SI no | Applicant Name and Designation |
| 1. | Comviva Technologies Limited (company) |
| 2. | Mr. Manoranjan Mohapatra, CEO |
| 3. | Mr. Neeraj Jain , CFO |
| 4. | Mr. Parminder Singh Bakshi, CS |
| 5. | Mr. Rajat Mukherjee, (Independent Director) |
| 6. | Mr. Vivek Satish Agarwal, (Non-Executive Director) |
| 7. | Mr. Jagdish Mitra, (Non- Executive Director) |
| 8. | Ms. Sunita Umesh, (Independent Director) |
| 9. | Mr. Manishkumar Murlimanohar Vyas, (Non-Executive Director) |
III. That against the order passed on 27.09.2022, an appeal was made before RD (NR) by the subject company and its officers with request to exonerate absolutely all directors (as directors were non-executive/independent) from being considered as officer in default for non-compliance of Section 135 of the Act. Subsequently, the Adjudicating Officer received letter no RDNR/adj/454/15812 dated 21.03.2023 which inter alia mentioned that hearing of appeal took place on 9th March 2023. Mr. Jatin Gupta, PCS and Mr. Parminder Singh Bakshi, Authorized Representative of the subject company appeared for hearing and based on the consent of the AR, the 0/o RD(NR) referred back the matter to this office for de novo adjudication.
IV. Accordingly, this matter is treated de-novo and in order to seek some clarification with respect to the prayers made in the appeal, this office issued a letter to company on 31.03.2023. In response, vide a letter dated 11.04.2023, a reply along with supporting documents (including Certified True Copy of Board Report and Annual Report on CSR) was submitted.
V. An SCN was issued on 21.04.2023. All the noticees were given a time of 10 days for written submission and Oral Hearing was scheduled on 3rd May, 2023. In the SCN, input was specifically sought on the issue of officer in default (i.e. Board of Director and KMP) as the company in its appeal has drawn attention to Ministry of Corporate Affairs (MCA) General Circular No 01/2020 dated 02nd March 2020. Accordingly, it was highlighted that various officers/directors performed following roles concerning the CSR provisions (as mentioned in the Act and Rules):
a. CSR committee comprises of the following:
| SI no | Director Name | Designation |
| 1. | Rajat Mukherjee | Independent Director and Chairman CSR Commitee |
| 2. | Sunita Umesh | Independent Director |
| 3. | Jagdish Mitra | Non Executive Director |
b. The Annual Report on CSR has been signed by following:
| SI no | Director Name | Designation |
| 1. | Manoranjan Mohapatra, | CEO &WTD |
| 2. | Rajat Mukherjee | Independent Director |
c. The Board Report for the financial year 2020-21 has been signed by following:
| SI no | Director Name | Designation |
| 1. | Vivek Satish Agarwal | Non Executive Director |
| 2. | Jagdish Mitra | Non Executive Director |
d. The CSR-2 form filed for F.Y. 2020-21 has been digitally signed by following.
| SI no | Director Name | Designation |
| 1. | Manishkumar Murlimanohar Vyas | Non Executive Director |
4. Submissions made by the company: –
In response to the SCN, a reply dated 1st May 2023 was submitted. Further, on the date of hearing on 03.05.2023, Sh. Parminder Singh Bakshi CS of the Company and Sh. Jatin Gupta, Authorized Representative, appeared for hearing on behalf of the Company and all other appellants. The following submissions were made by the company in their reply and the oral hearing that followed consequently:
a. W.r.t respect to disclosures concerning CSR and signing of Board Report, Annual Report on CSR and CSR-2 eform, the signature was done by Director on behalf of the Board and not in personal capacity. Further, Manoranjan Mohapatra signed Annual Report on CSR in his capacity as CEO and for the said period he was not a Director.
b. The CSR Committee of the company has been constituted by Board Resolution and its responsibility relates to formulation of CSR Policy, recommending CSR expenditure and monitoring the CSR Policy.
c. Attention has been invited to Section 135(5) and 135(7) of the Act r/w Section 2(60) of the Act and General Circular No 01/2020 dated 02nd March 2020 issued by MCA. While the responsibility for spending has been cast upon the Board, the contention that every Director of the Board, CFO and CS cannot be construed as “Officer in Default”, in view of Section 2(60) of the Act.
d. Further, attention has been invited to sub-clause (iv) of Section 2(60) of the Act and has been submitted that the Board acts as collective agency, since individuals are required to perform all acts for legal person i.e. company. The Board as a body of individuals has a collective responsibility to ensure the compliances under Companies Act, being the highest and the only executive body in the company. Since, the Board is a collective body and not a set of directors acting individually, the individual directors cannot be severally held responsible for the action of “the collective body” except in cases where the default is directly attributable to the individuals who was either in charge of the affairs or with whose connivance or consent the impugned action took place or even where Act wants all directors to be held responsible as is the case with Section 203 of the Act.
e. The argument advanced with respect to “Officer in default” has been supplemented by drawing parallel with Adjudication order passed in the matter of “Lava International Limited” for violation of Section 134 wherein penalty has been levied in terms of Section 134(8) and that too taking into account Section 2(60) of the Act. Further, attention has been penalty levied in the matter of “Beam Global Spirits & Wine (India) Private Limited” for violation of Section 203. As the Act mentions penalty on “Every Director” under the said section, in that case the penalty could be imposed on all the Directors.
f. At last, it has been submitted that the company being a legal person needs natural person to perform all acts. The natural person comprises of Board of Directors and KMP, as the case may be. Under no circumstance, this fundamental principle be ignored while interpreting and adjudicating the case. The Board act as a whole and give approval to almost all the policy/ procedural issues and sometimes assign duty/ responsibility on individuals. Thus, Board as a whole should not be charged for violations, unless specifically stated in the Section and that too in the penal provisions.
g. As mentioned in appeal, it was submitted to exonerate absolutely independent directors and non- executive directors from being terms as officer in default, however KMP’s of the company may be treated as officer in default liable for non-compliance in view of Section 2(60) of the Act.
5. Factors considered for adjudication of penalties: –
I. It is undeniable that at the first instance, the company had applied for adjudication on its own, after admitting its default. It is also clear that all the applicants including the non-executive directors/ independent directors also came on their own for adjudication. Thus, the stance now taken by the company to pray for exclusion of the non-executive directors/ independent directors, at this stage is to an extent hit by the principle of estoppel.
II. Without prejudice to above, the stance taken by the company leads to a paradoxical situation, whereby all the directors of the company would be exonerated. Whereas, the statute casts a clear obligation on the Board to comply with CSR. Section 135 (5) of the Act reads as follows:
135 (5) “The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two per cent. of the average net profits of the company made during the three immediately preceding financial years or where the company has not completed the period of three financial years since its incorporation, during such immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy:
Provided that the company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities:
Provided further that if the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount [and, unless the unspent amount relates to any ongoing project referred to in sub-section (6), transfer such unspent amount to a Fund specified in Schedule VII, within a period of six months of the expiry of the financial year].
Provided also that if the company spends an amount in excess of the requirements provided under this sub-section, such company may set off such excess amount against the requirement to spend under this sub-section for such number of succeeding financial years and in such manner, as may be prescribed.
III. A reference may also be made to sl. no. 2.3 of the Frequently Asked Questions (FAQs) on Corporate Social Responsibility (CSR) issued vide General Circular 14/2021 dated 25.08.2021, which reads as under:
|
SI. No. |
Question | Answer |
| 2.3 | What are the responsibilities of the Board in relation to the CSR provisions? | CSR is a Board-driven process. The responsibilities of the Board of a CSR-eligible company, inter-alia, include the following —
(i) approve the CSR policy; (ii) disclose contents of such policy in its report and also place it on the (iii) ensure that the activities included in the CSR policy are undertaken by the company; (iv) ensure that the company (v) satisfy itself regarding the utilisation of the disbursed CSR (vi) if the company fails to spend at least two per cent of the average net profits of the company, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount and transfer the unspent CSR amount as per provisions of sections 135(5) and 135(6) of the Act. |
IV. Thus, it is clear that section 135 of the Act and rules made thereunder casts an onus on the Board to comply with the provisions. The responsibility inter alia includes that the Board shall not only ensure that the company spends, in every financial year, at least two per cent of the average net profits of the company made during the three immediately preceding financial years but shall also satisfy itself regarding the utilisation of the disbursed CSR funds. The Board here refers to all the directors of the company, whether executive or otherwise. It is a trite principle of law that in case the law casts an obligation upon any person/body, the liability in case of default in complying with such obligation would also squarely lie with such person/body. The FAQs issued by the Ministry also unequivocally point out to the same direction that —CSR is a Board driven process. Thus, the onus of non-compliance would also lie on the Board itself. The argument of the Company to not to consider any of its director as a defaulting officer, on the pretext that all the directors are holding non-executive/independent positions would lead to a absurd situation, where none of the directors would be held accountable for the violations of section 135.
V. As regards, the interpretation of section 2(60) of the Act, which defines an officer-in-default is concerned, it may be noted that section 2 begins with the words, “unless the context requires otherwise”. Thus, the principle of ascertaining the officer-in-default on the basis of section 2(60) would only hold good if the concerned provision does not identify the officer-in-default. Once such officer is identifiable under the relevant provision, the general definition of section 2(60) would no longer hold the sway. Similarly, the argument of the company to compare the position under section 134, which deals with compliances related to Board’s Report with section 135 is not appropriate, as the onus is not identified in a pari materia manner in both the provisions. The argument regarding section 203(5) is also misplaced, as the provision clearly qualifies the liability of “every director” by the words “who is in default”. Thus, the identification of onus under section 203 is not as unequivocal as in section 135.
VI. The Company has provided the following list of directors and KMPs as on 30.9.2021:
| SI no | Name of Directors and KMPs | Designation |
| 1. | Mr. Jagdish Mitra | Non-Executive Director |
| 2. | Mr. Vivek Satish Agarwal, | Non-Executive Director |
| 3. | Mr. Manishkumar Murlimanohar Vyas | Non-Executive Director |
| 4. | Mr. Rajat Mukherjee | Independent Director |
| 5. | Ms. Sunita Umesh | Independent Director |
| 6. | Mr. Manoranjan Mohapatra | CEO (KMP) |
| 7. | Mr. Neeraj Jain | CFO (KMP) |
| 8. | Mr. Parminder Singh Bakshi | CS (KMP) |
VII. In view of the aforesaid reasons, the KMPs who did not hold Board positions would not be liable under section 135. But all the directors as on that relevant date would be liable on account of the failure to discharge an obligation cast upon them by the law.
6. The relevant provision of the Act are as under:
Section 135 (Corporate Social Responsibility)
(5) “The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two per cent. of the average net profits of the company made during the three immediately preceding financial years 7[or where the company has not completed the period of three financial years since its incorporation, during such immediately preceding financial years], in pursuance of its Corporate Social Responsibility Policy:
Provided that the company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities:
Provided further that if the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount [and, unless the unspent amount relates to any ongoing project referred to in sub-section (6), transfer such unspent amount to a Fund specified in Schedule VII, within a period of six months of the expiry of the financial year].
Provided also that if the company spends an amount in excess of the requirements provided under this sub-section, such company may set off such excess amount against the requirement to spend under this sub-section for such number of succeeding financial years and in such manner, as may be prescribed.
(7) If a company is in default in complying with the provisions of sub-section (5) or sub-section (6), the company shall be liable to a penalty of twice the amount required to be transferred by the company to the Fund specified in Schedule VII or the Unspent Corporate Social Responsibility Account, as the case may be, or one crore rupees, whichever is less, and every officer of the company who is in default shall be liable to a penalty of one-tenth of the amount required to be transferred by the company to such Fund specified in Schedule VII, or the Unspent Corporate Social Responsibility Account, as the case may be, or two lakh rupees, whichever is less.
Section 2(60) of the Companies Act, 2013
“officer who is in default”, for the purpose of any provision in this Act which enacts that an officer of the company who is in default shall be liable to any penalty or punishment by way of imprisonment, fine or otherwise, means any of the following officers of a company, namely:—
(i) whole-time director;
(ii) key managerial personnel;
(iii) where there is no key managerial personnel, such director or directors as specified by the Board in this behalf and who has or have given his or their consent in writing to the Board to such specification, or all the directors, if no director is so specified;
(iv) any person who, under the immediate authority of the Board or any key managerial personnel, is charged with any responsibility including maintenance, filing or distribution of accounts or records, authorises, actively participates in, knowingly permits, or knowingly fails to take active steps to prevent, any default;
(v) any person in accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act, other than a person who gives advice to the Board in a professional capacity;
(vi) every director, in respect of a contravention of any of the provisions of this Act, who is aware of such contravention by virtue of the receipt by him of any proceedings of the Board or participation in such proceedings without objecting to the same, or where such contravention had taken place with his consent or connivance;
7. Adjudication of penalty: –
i. The subject company does not get covered under the purview of small company as defined u/s 2(85) of the Act. Hence, the benefit of section 446B would not be applicable on the company.
ii. Now in exercise of the powers conferred on me vide Notification dated 24th March, 2015 and having considered the reply submitted by the noticee (s) in response to the notice issued on 21.04.2023 and hearing held in the matter on 03.05.2023, I do hereby impose the penalty on the company and its Board of Directors for violation of section 135 (5) of the Companies Act, 2013 r/w Rule 10 of the Companies (Corporate Social Responsibility Policy) Rules, 2014:
| Violation section |
Penalty imposed on company/ director(s) |
Calculation of penalty amount (in Rs.) | Penalty imposed (in Rs.) |
| A | B | C | D |
| u/s 135 (5) of the Companies Act’ 2013 | Comviva Technologies Limited (company) | 5,50,122 x 2 = 11,00,244 | 11,00,244 |
| Rajat Mukherjee, (Independent Director) | 5,50,122/10= 55,012.20 | 55,012.20 | |
| Vivek Satish Agarwal, (Non-Executive Director) | 5,50,122/10= 55,012.20 | 55,012.20 | |
| Jagdish Mitra, (Non- Executive Director) | 5,50,122/10= 55,012.20 | 55,012.20 | |
| Sunita Umesh, (Independent Director) | 5,50,122/10= 55,012.20 | 55,012.20 | |
| Manishkumar Murlimanohar Vyas, (Non-Executive Director) | 5,50,122/10= 55,012.20 | 55,012.20 |
6. Order:
a. Names of parties as mentioned in the table above are hereby directed to pay the penalty amount as per column no. ‘D’ therein. In case of parties other than company, such amount is required to be paid out of their own funds.
b. The said amount of penalty shall be paid through online by using the website mca.gov.in (Misc. head) in favor of “Pay & Accounts Officer, Ministry of Corporate Affairs, New Delhi, within 90 days of receipt of this order, and intimate this office with proof of penalty paid.
c. That the earlier order for Adjudication of Penalty vide no. ROC/D/Adj Order/Section 135/Comviva/5702-5710 vide dated 27.09.2022 shall cease to operate in view of the RD(NR) letter no RDNR/ADJ/454/15812 dated 21.03.2023 whereby directions were issued for considering this matter as de novo.
d. Appeal against this order may be filed with the Regional Director (NR), Ministry of Corporate Affairs, B-2 Wing, 2nd Floor, Paryavaran Bhawan, CGO Complex, Lodhi Road, New Delhi-110003 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 the order. [Section 454(5) & 454(6) of the Act read with Companies (Adjudicating of Penalties) Rules, 2014].
e. Your attention is also invited to section 454(8) of the Act in the event of non-compliance of this order.
(Pranay Chaturvedi, ICLS)
Registrar of Companies
NCT of Delhi & Haryana
No. ROC/D/Adj Order/Section 135/Comviva/Denovo/2006-2015
Dated: 17/05/2023
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