In a notable decision, the Regional Director (Eastern Region) of the Ministry of Corporate Affairs, Kolkata, has reduced the penalties imposed on MPS Distributors Private Limited and its directors for violations under Section 158 of the Companies Act, 2013. The revised penalties amount to ₹2.25 lakh, significantly lower than the original ₹4.5 lakh imposed by the Registrar of Companies (ROC), West Bengal.
Background of the Case
The case involved a failure to comply with Section 158 of the Companies Act, 2013, which mandates the inclusion of a Director Identification Number (DIN) in company records. The ROC, in its initial order dated February 15, 2024, had imposed penalties totaling ₹4.5 lakh—₹2.5 lakh on the company and ₹1 lakh each on directors Tarun Kumar Mukherjee and Basudev Saha for non-compliance over a five-year period (2015-2020).
The appeal was filed under Section 454 of the Companies Act, contesting the ROC’s penalty. The hearing took place on October 28, 2024, before the Regional Director.
Appeal Proceedings
During the hearing, the authorized representative for MPS Distributors initially presented no substantial argument against the ROC’s order. However, subsequent submissions highlighted that the company qualified as a “small company” under Section 2(85) of the Companies Act. Financial documents, including Form MGT-7A and financial statements for FY 2023-24, were submitted to substantiate this claim.
Under Section 446B of the Act, penalties for small companies are capped at reduced amounts, a factor the appellant sought to invoke.
Decision by the Regional Director
After reviewing the submissions and verifying the financial status of MPS Distributors, the Regional Director modified the penalties as follows:
| Entity/Director | Original Penalty (₹) | Revised Penalty (₹) |
|---|---|---|
| MPS Distributors Pvt. Ltd. | 2,50,000 | 1,25,000 |
| Tarun Kumar Mukherjee (Director) | 1,00,000 | 50,000 |
| Basudev Saha (Director) | 1,00,000 | 50,000 |
The total penalty now stands at ₹2.25 lakh, reduced from the original ₹4.5 lakh.
Rationale for Penalty Reduction
The Regional Director noted that the company’s classification as a small company was a valid mitigating factor under Section 446B. This provision allows for reduced penalties for such entities, acknowledging their limited scale and resources.
Compliance Requirements
The revised penalty must be paid within 90 days of the order date, i.e., by February 23, 2025. Failure to comply may result in further action under Section 454(8) of the Companies Act, 2013, including potential prosecution.
Implications for Other Companies
This decision underscores the importance of accurately representing a company’s classification under the Companies Act. Small companies can leverage provisions like Section 446B to mitigate penalties in non-compliance cases. However, timely and complete submissions during hearings are crucial for favorable outcomes.
Conclusion
The reduction in penalties in the MPS Distributors case serves as a reminder for companies to ensure compliance with DIN requirements under Section 158. The decision also highlights the role of appellate authorities in ensuring proportional penalties based on company size and circumstances.
Application No. RD/ER/454/50/2024/Appeal/7285-89
BEFORE THE REGIONAL DIRECTOR, EASTERN REGION
MINISTRY OF CORPORATE AFFAIRS, KOLKATA.
IN THE MATTER OF
THE COMPANIES ACT, 2013
-AND-
IN THE MATTER OF
M P S DISTRIBUTORS PRIVATE LIMITED
17/6/H/3 CANAL WEST ROAD P.O. AMHERST STREET
KOLKATA WB 700009 INDIA
-AND-
IN THE MATTER OF
Appeal under section 454 of The Companies Act, 2013 against the penalty order dated 13/06/2024 of Registrar of Companies, West Bengal passed for violation of the provisions of section 158 of the Companies Act, 2013.
-AND-
IN THE MATTER OF
1. M P S DISTRIBUTORS PRIVATE LIMITED
17/6/H/3 CANAL WEST ROAD P.O. AMHERST STREET
KOLKATA WB 700009 INDIA
2. TARUN KUMAR MUKHERJEE (Director)
3. Considering the facts and circumstances of the case, the Adjudicating Authority had imposed Penalty for violation of Section 158 of Companies Act, 2013 as under: –
| Name of the Applicant Company/ Director | Amount of Default (in Rs.) |
Total maximum Penalty imposed (in Rs.) |
| M/s MPS DISTRIBUTORS PRIVATE LIMITED (For the year ended 2015-16 to 2019-20) | 50,000*5 years = 2,50,000 |
2,50,000
|
| TARUN KUMAR MUKHERJEE (Director)
(For the year ended 2015-16 to 2019-20) |
50,000*5 years
= 2,50,000 |
1,00,000
|
| BASUDEV SAHA (Director)
(For the year ended 2015-16 to 2019-20) |
50,000*5 years
= 2,50,000 |
1,00,000
|
| Total penalty imposed | 4,50,000 | |
4. Having considered the facts and circumstances of the case and after taking into account the factors concerned, Registrar of Companies, West Bengal imposed a penalty of Rs. 2,50,000/- (Rupee Two lakhs fifty thousand Only) on the concerned Company and Rs. 10,0000/ – (Rupees One lakh Only) on each of the two Directors in default namely Mr Tarun Kumar Mukherjee and Mr Basudev Sahaunder Section 158 of the Act, in Total Rs. 4,50,000/- (Rupees Four lakhs fifty thousand Only) (i.e., Rs. 2,50,000 for Company and Rs. 10,0000 on each of the two Directors) for failure to make compliance of the provision of Section. 158 of the Act.
5. The appeal was heard on 28/10/2024. The Authorized Representative was asked to make a submission regarding infirmity if any in the order of Registrar of Companies. The Authorised Representative had no valid submission in this regard at the time of hearing. Further another submission vide letter dated 14.11.2024 was received from the Authorised representative wherein it was stated that the Authorised representative mistakenly not represented in the hearing dated 28.10.2024 about the Company being a small company and submit further documents in support for consideration. As per the further submission, the company is a small Company under the definition of Section 2(85) of the Companies Act, 2013 and in this regard copies of MGT 7A for the financial year 2023-24 and financial statement for the financial year 2023-24 were submitted before the Appellate Authority.
6. Based on the further submissions made by the Authorised Representative and after verifying the financial statements of the Company from the portal, the Appellate Authority is of the view that the Company falls under the definition of a Small Company u/s 2(85) of the Companies Act, 2013 and thus the said Company and its directors are liable for penalty u/s 446B of the Companies Act, 2013 for violation of section 158 of the Companies Act, 2013 Hence, the order of ROC is modified as cogent ground was made out by Authorised Representative. The undersigned by virtue of the power vested in Regional Director under section 454(7) of the Companies Act, 2013 read with the Companies (Adjudication of Penalties) rules, 2014 modifies the order of the Registrar of Companies, West Bengal dated 15/02/2024 as under:
| Name of the Applicant Company/ Director | Amount of Default (in Rs.) |
Total maximum Penalty imposed (in Rs.) |
Penalty imposed by the Appellate Authority u/s 446B of the Companies Act, 2013 |
| M/s MPS DISTRIBUTORS PRIVATE LIMITED (For the year ended 2015-16 to 2019-20) |
50,000*5 years = 2,50,000 | 2,50,000 | 1,25,000 |
| TARUN KUMAR MUKHERJEE (Director) (For the year ended 2015-16 to 2019-20) | 50,000*5 years = 2,50,000 | 1,00,000 | 50,000 |
| BASUDEV SAHA (Director) (For the year ended 2015-16 to 2019-20) | 50,000*5 years = 2,50,000 | 1,00,000 | 50,000 |
| Total penalty imposed | 4,50,000 | 2,25,000 | |
Considering the facts and circumstances of the case and after taking into account the factors above, the appellate authority imposes a penalty of Rs. 1,25,000/- (Rupee One lakh twenty-five thousand Only) on the concerned Company and Rs. 50,0000/- (Rupees fifty thousand Only) on each of the two Directors in default under Section 158 of the Act, in Total Rs. 2,25,000/- (Rupees two lakhs twenty five thousands Only) (i.e., Rs. 1,25,000 for Company and Rs. 50,0000 on each of the two Directors) for failure to make compliance of the Act u/ s. 158 of the Act.
7. The Company and Directors/Officers of the company shall pay the amount of penalty from out of their own pockets. The amount of penalty shall be paid within a period of 90 days from the date of receipt of the copy of the order. Further, if the Company and its Directors fail to deposit the penalty amount within the prescribed time limit, action under section 454(8)(i) and (ii) of the Companies Act, 2013 shall be initiated against the Company and its Directors.
8. Hence the instant Appeal stands disposed of accordingly.
(P. Sridhar)
REGIONAL DIRECTOR (ER)
Signed this the 25th day of November, 2024.
