Summary: According to the order, the violation was discovered during an inspection ordered by the Ministry of Corporate Affairs. It was found that the Secretarial Audit Report for the financial year ended 31.03.2019 did not mention the non-compliance of provision of Section 186 of the Companies Act, 2013, and the Minutes Books of the Board Meeting and Audit Committee were not maintained as per secretarial standards. After issuing an adjudication notice, a hearing was held where the authorized representatives of the Secretarial Auditor presented their submission, stating that the violation was due to inadvertent error and no unfair advantage or loss was caused. The Presenting Officer argued that there was a violation of Section 204 and the Secretarial Auditor should be liable for penalty. Considering the facts and circumstances, the Adjudicating Officer concluded that there was a violation of Section 204 and imposed a penalty of Rs. 2,00,000/- on the Secretarial Auditors.
An order of adjudication has been passed in relation to the violation of Section 204 of the Companies Act, 2013 with regards to the case of M/s. Essar Shipping Limited.
While conducting the secretarial audit, each secretarial auditor must adhere to the requirements of the 2013 Companies Act. Inspecting is done by the Ministry in accordance with section 206(5) of the 2013 Companies Act.
However, the inspecting officer identified a violation of Section 204 of the Company Act 2013 by the Secretarial Auditor during the inspection. The Company’s noncompliance has not been noted by the Secretarial Auditor in its report.
inspection conducted by the Office of the Regional Director (NWR), Ahmedabad:
According to the available data with ROC Gujarat, an adjudication order has been issued by Dadra & Nagar Haveli under section 454 of the Companies Act, 2013, citing a violation of Section 204 by the Secretarial Auditor of the company.
The Ministry of Corporate Affairs (MCA), Regional Director (RD), and ROC have made a prudent decision to send notices to companies and professionals in cases where the company has not complied with the required regulations and the non-compliance has not been appropriately reported in their reports. It is recommended that the RD/ROC also send notices to directors and other professionals who fail to indicate non-compliances in documents such as MGT-7, MGT-8, etc.
According to the Ministry’s request under section 206(5) of the 2013 Companies Act, an inspection of the company was conducted. During the inspection, the inspecting officer identified a violation of Section 204 of the Company Act. The Secretarial Auditor’s Report indicates that there was non-compliance with Section 186 of the 2013 Companies Act, as the board meeting minutes and audit committee minutes books were not maintained according to Secretarial Standards, thereby violating Section 204 of the Act.
On April 11, 2023, the Secretarial Auditor received an adjudication notice from the concerned office, citing a violation of Section 204 of the Companies Act, 2013 under section 454, along with a request to pay the specified fine.
Subsequently, the Secretarial Auditor sent a written request on April 26, 2023, for the concerned person to attend a hearing in person on May 9, 2023. In response, the hearing was scheduled for Tuesday, May 9, 2023, at 2.30 p.m. in the Office of the Registrar of Companies (ROC) in Ahmedabad.
During the hearing on May 9, 2023, authorized representatives of the Secretarial Auditor presented their case, stating that the company does not have any operations and is incurring losses. They attributed the observation made by the inspecting officer to an inadvertent error on the part of the Secretarial Auditors, emphasizing that there was no unfair advantage gained or loss caused to investors. The authorized representatives of the Secretarial Auditors requested a lenient view in the matter.
The presenting officer pointed out that the Secretarial Auditor failed to report the facts and figures regarding non-compliance with section 186 of the Companies Act, 2013, as well as the non-maintenance of Minutes Books of the Board Meetings and Audit Committee, as required by the Secretarial Standards issued by lCSI.
It is argued that the Secretarial Auditors of the company should be held liable for the penalty under the provisions of section 204(4) of the Companies Act, 2013.
Order & Penalty of Rs.200000 imposed by ROC on the Secretarial Auditor of the Company:
When determining the penalty amount under section 204 of the Companies Act, 2013, the Adjudication Officer must consider the following factors:
I. The extent of disproportionate gain or unfair advantage, if quantifiable, obtained as a result of the default.
II. The extent of loss incurred by an individual investor or a group of investors due to the default.
III. The repetitive nature of the default.
Referring to the ROC’s directive, as a company secretary, it is essential to consider it an enlightening one. It mandates us to examine thoroughly each segment of the Companies Act and every method utilized by the company for any transactions, such as loans, guarantees, related parties, etc. Besides Secretarial Auditor, even the professional certifying MGT-7 and MGT-8 must certify compliance with the provisions of the Companies Act, 2013. This is because it is their responsibility to verify compliance before certification.
FULL TEXT OF THE ORDER
BEFOR THE ADJUDICATING OFFICER
REGISTRAR OF COMPANIES, GUJARAT, DADRA & NAGAR HAVELI
Order No. ROC-Gui/Adi. Order/Sec. 204/2023/996 To 996 Dated: Dated: 18 May 2023
ORDER FOR PENALTY UNDER SECTION 454 OF THE COMPANIES ACT, 2013 READ WITH COMPANIES (ADJUDICATION OF PENALTIES) RULES, 2014 FOR VIOLATION OF SECTION 204 OF THE COMPANIES ACT, 2013.
IN THE MATTER OF M/s. ESSAR SHIPPING LIMITED
Date of hearing- 09.05.2023
1. Shri R. C. Mishra (ROC), Adjudicating Officer
2. Indrajit Vania (DROC), Presenting Officer.
Company/Officers/Directors/KMP/ Authorised Representative:
Mr. Mayank Arora (PCS), Ms. Nisha Banrnval (CS), Mr. Sanjay Shah and Mr. Kunjan Mysorewala the Authorised Representatives of the Company/Directors.
Appointment of Adjudication Authority: –
1. The Ministry of Corporate Affairs vide its Gazette Notification No. A-42011/112/2014-Ad. II dated 24.03.2015 has appointed the undersigned as Adjudicating Officer in exercise of the powers conferred under section 454 of the Companies Act, 2013 (hereinafter known as Act) read with Companies (Adjudication of Penalties) Rules, 2014 (Notification No. GSR 254(E) dated 31.03.2014) for adjudging penalties under the provisions of Act.
2. M/s. ESSAR SHIPPING LIMITED (herein after referred to as “the Company”) is a Company registered under the provisions of the Companies Act, 1956/2013 in the State of Gujarat, having CIN (L61200GJ2010PLC060285) and presently having its registered office situated at EBSTL Premises, ER-2 Building (Admn. Bldg.), Salaya, 44KM, P.O. Box No. 7, Taluka Khambhalia, Devbhumi, Dwarka, Gujarat- 361 305.
Fact of the case:
3. The Ministry of Corporate Affairs vide letter No. 07/120/2019/CL.II (ER) dated 01.2021 has ordered Inspection of the Company under section 206(5) of the Companies Act, 2013. Accordingly, inspection under section 206(4\5) of the Companies Act, 2013 has been carried-out by the office of Regional Director (NWR), Ahmedabad. During the course of inspection, the inspecting officer has pointed out the violation of section 204 of the Companies Act, 2013 as under:
“It is observed from the Secretarial Audit Report for the financial year ended 31.03.2019 that secretarial auditors of the company in its report has not mentioned about the non-compliance of provision of section 186 of the Companies Act, 2013. The Minutes Books of the Board Meeting and Audit Committee are not maintained as per secretarial standards and same is not reported by secretarial auditor. Hence, it is a violation of Section 204 of the Companies Act, 2013 and accordingly, the Secretarial Auditor is liable for penal action under section 204 of this Act”.
4. The office of the undersigned issued adjudication notice under section 454 of the Companies Act, 2013 for violation of section 204 of the Companies Act, 2013 to the Secretarial Auditor of the Company on 11.04.2023 with request to remit the penalty as prescribed under the provisions of the Companies Act.
5. Thereafter the Secretarial Auditor vide letter dated 26.04.2023 requested the undersigned for physically hearing in the matter on 09.05.2023. Accordingly, the undersigned had fixed the hearing on 09.05.2023 at 2.30pm. in the 0/o ROC, Ahmedabad.
Reply / submission made by authorized representatives.
6. Mr. Mayank Arora (PCS), Ms. Nisha Banrnval (CS) the Authorized Representatives of the Secretarial Auditor present in the hearing proceeding on 09.05.2023 at 2.30pm. They submitted letter dated 18.04.2023 of Secretarial Auditor which is taken on record. They submitted that the company does not have any operations and running in losses. The observation made by Inspecting Officer is due to inadvertent error in the part of Secretarial Auditors. Therefore, neither any unfair advantage made by Secretarial Auditor nor any loss caused to investor. During the hearing the Authorized Representatives of Secretarial Auditors have requested to take lenient view in the matter.
7. Submission of the presenting officer:
The presenting officer submitted that the Secretarial Auditor of the company has not reported the facts and figure about the non-compliance of section 186 of the Companies Act, 2013 as well as non-maintaining of Minutes Books of the Board Meetings and Audit Committee as required under the Secretarial Standards issued by ICSI. Thereby, there is a violation of section 204 of the Companies Act, 2013.
It is submitted that the Secretarial Auditors of the company should be liable for the penalty under the provisions of section 204(4) of the Companies Act, 2013.The adjudicating authority has power under section 454 of the Act r.w. section 204 of the Companies Act, 2013 to impose penalty under section 204(4) of the Companies Act, 213.
8. While adjudging quantum of penalty under section 204 of the Companies Act, 2013, the Adjudication Officer shall have due regard to the following factors, namely:
(a) The amount of disproportionate gain or unfair advantage, whenever quantifiable, made as a result of default.
(b) The amount of loss caused to an investor or group of investors as a result of the default.
(c) The repetitive nature of default.
9. With regard to the above factors to be considered while determining the quantum of penalty, it is noted that the disproportionate gain or unfair advantage made by the noticee or loss caused to the investor as a result of the delay on the part of the noticee to redress the investor grievance are not available on the record. Further, it may also be added that it is difficult to quantify the unfair advantage made by the noticee or the loss caused to the investors in a default of this nature.
10. The undersigned considered the submission of the authorized representatives of the Secretarial Auditors of the Company and Presenting Officer. Having considering the facts and circumstances of the case and after taking into account the above factors, the undersigned has reasonable cause to believe that the Secretarial Auditor has violated the provision of section 204 of the Companies Act, 2013. I hereby imposed penalty of Rs. 2,00,000/-on the noticee Secretarial Auditors of the Company for violation of section 204 of the Companies Act, 2013.
11. The noticee shall pay the amount of penalty by the Secretarial Auditors (out of own pocket) by way of form No. INC-28 of e-payment (available on Ministry Website mac.gov.in) under “Pay miscellaneous fees” category in MCA fee and payment Service within 90 (ninety) days of this order and the Challan/SRN generated after payment of penalty through online mode shall be forwarded to this office along with the copy of form No. INC- 28.
12. Appeal if any, against this order may be filed in writing with the Regional Director, North Western Regional, Ministry of Corporate Affairs, ROC Bhavan, Opp. Rupal Park, Nr. Ankur Bus stand, Naranpura, Ahmedabad (Gujarat) 380 013 within a period of sixty days from the date of receipt of this order, in e-Form ADJ setting forth the grounds of appeal and shall be accompanied by the certified copy of this order. (Section 454 of the Companies Act, 2013 read with the Companies (Adjudicating of Penalties) Rules, 2014 as amended by Companies (Adjudication of Penalties) Amendment Rules, 2019).
13. Please note that as per the provisions of section 454(8)(i) of the Companies Act, 2013, where company does not pay the penalty imposed by the Adjudication officer or the Regional Director within a period of Ninety days (90 days) from the date of the receipt of the copy or order, the company shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakhs rupees. Further as per section 454(8)(11) of the Companies Act, 2013, where an officer of a company who is in default does not pay the penalty within a period of Ninety days (90 days) from the date of receipt of the copy of the order, such officers shall be punishable with imprisonment which may extend to six months or with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees, or with both.
14. Your attention is also invited to section 454(8) of the Companies Act, 2013 in the event of non-compliance of this order which provides that in case of default in payment of penalty, prosecution will be filed u/s. 454(8)(ii) of the Companies Act, 2013 at your own risk, costs and responsibility without any further notice.
The adjudication notice stands disposed of with this order.
(R. C. MISHRA) ICLS
Registrar of Companies,
Gujarat, Dadra and Nagar Haveli.