ROC Karnataka Imposes Penalty Upon SDU Projects Private Limited and Its Directors for Borrowing Money Without a Board Resolution Under Section 179(3)(d)
Summary: The Registrar of Companies, Karnataka, acting as Adjudicating Officer under section 454 of the Companies Act, 2013, passed an order dated 17.07.2026 against SDU Projects Private Limited and its two directors for contravening section 179(3)(d). During an inspection under section 206(5), the company was found to have advanced Rs. 50,00,000 to SDU Beverages Private Limited during FY 2016-17 without a Board resolution and to have borrowed Rs. 9,693, Rs. 58,000 and Rs. 2,59,100 from related parties during FY 2016-17, 2017-18 and 2018-19 respectively, again without prior Board resolutions. The company contended, among other things, that the payments were reimbursements of statutory and other expenses classified as short-term loans repayable on demand. The explanation was not accepted. The Adjudicating Officer also considered section 446B and held that the company did not qualify as a “small company”. Penalty under section 450 was therefore imposed at Rs. 10,000 for each year of default on the company, Managing Director Ms. Shambhavi Hingorani and Director Mr. Umesh Hingorani, resulting in Rs. 30,000 for each and a total penalty of Rs. 90,000. The company and directors were directed to pay within 90 days from receipt of the order and file Form INC-28 with the order and payment challans. An appeal may be filed before the Regional Director (South West Region), Bangalore, within 60 days from receipt of the order in Form ADJ.
- Background of this case
- Provisions Relating to This Case Under the Companies Act, 2013
- Consequences of Default/Violation: Action From the Regulator
- Details of the Company
- Facts of the Case
- Violation Reported to the Competent Authority
- Directions From the Competent Authority
- Action Taken by the ROC: Issue of Show Cause Notice
- Response From the Company
- Hearing on This Case
- ROC Decided to Proceed
- Conclusion of the ROC/Adjudicating Officer
- The Order Passed by the ROC/Adjudicating Officer
- Despatch of the Order
- The Complete Order for Reading
- Conclusion
- Practical Suggestions to Avoid Recurrence
- References
Background of this case
The Registrar of Companies, Karnataka, acting as Adjudicating Officer under Section 454 of the Companies Act, 2013, has passed an order dated 17.07.2026 against SDU Projects Private Limited (CIN U70100KA2011PTC058061) and its two directors for contravening Section 179(3)(d) of the Act. The default surfaced during an inspection carried out under Section 206(5) of the Act, which found that the company had advanced a loan of Rs. 50,00,000 to SDU Beverages Private Limited during the financial year 2016-17, and had separately borrowed further sums of Rs. 9,693, Rs. 58,000 and Rs. 2,59,100 from related parties across the financial years 2016-17, 2017-18 and 2018-19, in each instance without the Board first passing a resolution as required under Section 179(3)(d). After considering the company’s written explanation and hearing its authorised representative, the Adjudicating Officer imposed a total penalty of Rs. 90,000, apportioned as Rs. 30,000 upon the company, Rs. 30,000 upon its Managing Director Ms. Shambhavi Hingorani, and Rs. 30,000 upon its Director Mr. Umesh Hingorani, calculated at Rs. 10,000 for each of the three years in default.
Provisions Relating to This Case Under the Companies Act, 2013
The order rests on two provisions of the Companies Act, 2013. The first fixes the manner in which the Board may exercise the power to borrow; the second supplies the penalty, since Section 179 itself does not prescribe one.
| Section | Provision |
|---|---|
| 179(3)(d) | “The Board of Directors of a company shall exercise the following powers on behalf of the company by means of resolutions passed at meetings of the Board, namely:- … (d) to borrow monies.” |
| 450 | “If a company or any officer of a company or any other person contravenes any of the provisions of this Act or the rules made thereunder, or any condition, limitation or restriction subject to which any approval, sanction, consent, confirmation, recognition, direction or exemption in relation to any matter has been accorded, given or granted, and for which no penalty or punishment is provided elsewhere in this Act, the company and every officer of the company who is in default or such other person shall be liable to a penalty of ten thousand rupees and in case of continuing contravention, with a further penalty of one thousand rupees for each day after the first during which the contravention continues, subject to a maximum of two lakh rupees in case of a company and fifty thousand rupees in case of an officer who is in default or any other person.” |
Consequences of Default/Violation: Action From the Regulator
The consequence of this default has now taken the form of an adjudication order bearing F. No. ROCB/Adj.454-179/SDU Projects/Co.No.058061/2026 dated 17.07.2026, passed by the Registrar of Companies, Karnataka, in his capacity as Adjudicating Officer appointed vide the Ministry of Corporate Affairs’ Gazette Notification No. A-42011/112/2014-Ad.II dated 24.03.2015.
Details of the Company
SDU Projects Private Limited (CIN U70100KA2011PTC058061) was incorporated on 08.04.2011 and falls under the jurisdiction of the Registrar of Companies, Karnataka. Its registered office, as per the records of the Ministry of Corporate Affairs, is situated at No. 1/23, Raja Mansion, 12th Cross, Swimming Pool Extension, Malleswaram, Bangalore-560003, Karnataka. At the time the order was passed, the company’s Managing Director was Ms. Shambhavi Hingorani and its Director was Mr. Umesh Hingorani.
Facts of the Case
(a) During an inspection carried out under Section 206(5) of the Companies Act, 2013, the Inspector examined the company’s financial statements and other statutory filings.
(b) The Financial Statements for the year ended 31.03.2017 showed that the company had advanced a loan of Rs. 50,00,000 to SDU Beverages Private Limited during that year, but no board resolution had been passed authorising the advance, in contravention of Section 179(3) of the Act.
(c) The MGT-9 returns and financial statements for the financial years 2016-17, 2017-18 and 2018-19 showed that the company had itself borrowed further amounts of Rs. 9,693, Rs. 58,000 and Rs. 2,59,100 from related parties in the respective years, again without a board resolution passed prior to the borrowing, as required under Section 179(3)(d) of the Act.
(d) A preliminary findings letter bearing No. ROCB/Insp/SDU Projects/AROC(BB)/2020/10499 dated 09.03.2020 was issued to the company and its directors, calling upon them to explain the defaults noticed in the inspection.
(e) The company replied vide letter dated 04.11.2020, taking two positions: first, that a company may advance a loan to a person in whom a director is interested provided a special resolution is passed in general meeting with the requisite explanatory statement, and provided the loan is utilised by the borrowing company for its principal business activities; and second, that the payments in question were reimbursements of statutory and other payments incurred on the company’s behalf, classified as short-term loans repayable on demand, and were therefore not actual loans requiring a board resolution.
(f) The Inspecting Officer did not find this explanation tenable and recorded the violation in the Inspection Report.
Violation Reported to the Competent Authority
The Inspecting Officer’s finding was placed before the Competent Authority for consideration.
Directions From the Competent Authority
The Competent Authority accepted the finding recorded in the Inspection Report and directed the Registrar of Companies to initiate the necessary penal action against the company and its directors.
Action Taken by the ROC: Issue of Show Cause Notice
Pursuant to the direction of the Competent Authority, the Registrar of Companies issued notices bearing No. ROCB/ROC(B)/Insp/S.179/SDU Projects/2021/2390, 2391 and 2392 dated 01.09.2021 to the company and its two directors, calling upon them to show cause why penalty should not be imposed for the default noticed under Section 179(3)(d) read with Section 450 of the Act.
Response From the Company
The order does not record a separate written reply filed specifically against the 2021 show cause notice. The explanation already furnished by the company on 04.11.2020, summarised above, remained the explanation on record, and the matter was thereafter listed for a hearing.
Hearing on This Case
An adjudication hearing notice was issued to the company on 14.07.2025, and a physical hearing was held on 21.07.2025. Mr. Harshvardhan R Boratti, Practising Company Secretary, appeared on behalf of the company and its directors and made submissions before the Adjudicating Officer.
ROC Decided to Proceed
Before deciding the matter, the Adjudicating Officer also examined whether the company could claim the benefit of the lower penalty available to small companies under Section 446B of the Act. On verification, the company was found not to meet the definition of a “small company” under Section 2(85) of the Act, and the benefit of Section 446B was accordingly held to be unavailable. The Adjudicating Officer then proceeded to decide the matter on merits, based on the inspection findings, the company’s written explanation, and the submissions made at the hearing.
Conclusion of the ROC/Adjudicating Officer
On this basis, the Adjudicating Officer held that the explanation furnished by the company did not answer the default noticed in the inspection, and that the company and its two directors, being in default within the meaning of Section 179(3)(d), were liable to penalty under Section 450 of the Act for each of the three years in which the default occurred.
The Order Passed by the ROC/Adjudicating Officer
The Adjudicating Officer imposed the following penalty, computed at Rs. 10,000 for each year of default, upon the company and each of its two directors:
| Sr. No. | Penalty Imposed Upon | Penalty for FY 2016-17 (Rs.) | Penalty for FY 2017-18 (Rs.) | Penalty for FY 2018-19 (Rs.) | Total Penalty (Rs.) |
|---|---|---|---|---|---|
| 1 | SDU Projects Private Limited (Company) | 10,000 | 10,000 | 10,000 | 30,000 |
| 2 | Ms. Shambhavi Hingorani, Managing Director | 10,000 | 10,000 | 10,000 | 30,000 |
| 3 | Mr. Umesh Hingorani, Director | 10,000 | 10,000 | 10,000 | 30,000 |
| Total | 90,000 |
The company and its directors/key managerial personnel were directed to pay the penalty within 90 days from the date of receipt of the order and to file Form INC-28 attaching a copy of the order and the payment challans. In the case of the directors, the penalty is required to be paid out of their own funds. Payment is to be made online through the website www.mca.gov.in under the Miscellaneous head, specifying the details of the order and the noticee making the payment. An appeal against the order, if any, lies with the Regional Director (South West Region), Bangalore, within 60 days from the date of receipt of the order, in Form ADJ, setting forth the grounds of appeal and accompanied by a certified copy of the order. The order also draws attention to Section 454(8) of the Act, under which non-compliance will attract further penal action under Section 454(8)(i) and (ii) against the company and its directors/key managerial personnel, without further notice.
Despatch of the Order
The company has been required to serve a copy of the order on the director(s)/officer(s) in default, in terms of Section 20 of the Companies Act, 2013. The office record of despatch shows that the order was also sent directly by the Registrar of Companies to SDU Projects Private Limited at its registered office, to Ms. Shambhavi Hingorani at her address at Oakwood Premier Prestige, UB City, Bengaluru, and to Mr. Umesh Hingorani care of the company’s registered office.
The Complete Order for Reading
The readers may like to read the complete adjudication order in the matter of SDU Projects Private Limited, bearing F. No. ROCB/Adj.454-179/SDU Projects/Co.No.058061/2026 dated 17.07.2026, passed by the Registrar of Companies, Karnataka, at the MCA website at https://www.mca.gov.in/content/mca/global/en/data-and-reports/rd-roc-info/roc-adjudication-orders.html.
Conclusion
Section 179(3)(d) treats the power to borrow as a Board power, exercisable only through a resolution passed at a duly convened meeting. This is not a paperwork formality that can be regularised after the fact; the resolution is meant to precede the borrowing and to record the terms on which the Board consented to it. Where a company borrows, or advances monies that later attract the same scrutiny, without that resolution on record, the default is made out regardless of whether the funds were eventually accounted for correctly in the books. Classifying an amount as a short-term reimbursement, as the company attempted here, does not by itself dispense with the requirement of a board resolution if the underlying transaction is in substance a borrowing or a loan.
Practical Suggestions to Avoid Recurrence
- Treat every inflow of funds from a related party, however small, as a borrowing requiring a prior board resolution under Section 179(3)(d); the penalty in this case attached even to amounts as modest as Rs. 9,693.
- Fix ownership within the finance or secretarial team for flagging any advance, loan, or related-party inflow before it is recorded in the books, so that the board resolution is placed on the agenda before the transaction, not after the auditors raise it.
- Where a payment is genuinely a reimbursement rather than a loan, document the basis for that classification at the time it is made, supported by underlying vouchers, so the position can be defended if questioned later.
- Build a periodic reconciliation between the minutes book and the related-party/borrowing figures disclosed in the financial statements and MGT-9, so that any unresolved resolution gap is caught during the year rather than at the next inspection.
- Respond to a preliminary findings letter with the underlying board resolution or minutes, where one exists, rather than a legal justification alone; an explanation unsupported by the resolution itself is unlikely to be found tenable.
References
i. The Companies Act, 2013, Sections 179(3)(d), 206(5), 446B, 450, 454 and 454(8).
ii. The Companies (Adjudication of Penalties) Rules, 2014, Rule 3.
iii. Order of Adjudication of Penalty in respect of SDU Projects Private Limited, F. No. ROCB/Adj.454-179/SDU Projects/Co.No.058061/2026 dated 17.07.2026, passed by the Registrar of Companies, Karnataka.
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Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at [email protected]).
