Introduction: In a recent case concerning Natsol Laboratories Private Limited, an appeal was filed under section 454(5) of the Companies Act, 2013, challenging a penalty imposed for default in compliance with the requirements of Section 203(1). The penalty, originally set at Rs. 7 Lakh, has been reduced to Rs. 1.25 Lakh. In this article, we’ll delve into the details of this case, the reasons behind the penalty reduction, and its implications.
Detailed Analysis:
1. Background of the Case: Natsol Laboratories Private Limited and its Whole-time Directors were facing penalties for failing to appoint a Company Secretary as required by Section 203(1) and Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. Despite the company’s paid-up capital exceeding the prescribed limit, it had not appointed a Company Secretary.
2. Original Penalty Imposed: The Registrar of Companies had initially imposed a penalty of Rs. 7.00 Lakhs on the company and Rs. 50,000/- on each of the four directors, totaling Rs. 7.00 Lakhs. This decision came after a hearing held on 08.09.2022.
3. Appellants’ Submissions: The appellants presented their case before the Regional Director, Mr. Saroj K Sahoo, on 07.02.2023. They highlighted that new management had taken over the company since 2016, and the company had not initiated any commercial operations. Furthermore, the company had been consistently incurring losses, and it had sold all its fixed assets, making future business growth unlikely. The appellants also argued that the company had three Whole Time Directors who should not be held responsible for this violation. To rectify the situation, the company had appointed Puja Jaiswal as Company Secretary, effective from 08.2022.
4. Penalty Reduction: After considering the facts and the appellants’ submissions, the then Regional Director reduced the penalty. The company’s penalty was reduced to Rs. 50,000/-, and the penalty for the three Whole-time Directors was reduced to Rs. 25,000/- each. This brought the total penalty down to Rs. 1.25 Lakh. Additionally, the penalty imposed on Jagarlamudi Suresh Babu, Director, was set aside, given the presence of Whole Time Directors responsible for day-to-day activities. The appellants were directed to comply with this order and the relevant provisions of the Companies Act, 2013.
5. Payment and Conclusion: The company and the three officers (Venkata Subbaraju Gottumukkala, Siva Venkata Rama Krishna Raju Dandu, and Venkatasita Ramaraju Kanumuri) paid the reduced penalties, amounting to Rs. 1.25 Lakh, on 16.08.2023. This order was issued on 12th September 2023.
In summary, this case showcases the appeal process under the Companies Act, 2013, and the possibility of penalty reduction based on the circumstances and submissions made by the appellants. The penalty reduction from Rs. 7 Lakh to Rs. 1.25 Lakh reflects a fair consideration of the company’s situation and the steps taken to rectify the compliance issue. It underscores the importance of understanding the nuances of corporate governance and adhering to statutory requirements while allowing for flexibility in certain cases.
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F.No:9/127/ADJ/SEC.203/2013/ANDHRA PRADESH/RD(SER)/2022 /3711
BEFORE THE REGIONAL DIRECTOR, SOUTH EAST REGION
MINISTRY OF CORPORATE AFFAIRS, HYDERABAD
IN THE MATTER OF COMPANIES ACT, 2013
IN THE MATTER OF NATSOL LABORATORIES PRIVATE LIMITED
1. M/s. Natsol Laboratories Private Limited
2. Venkata Subbaraju Gottumukkala, Whole-time Director
3. Siva Venkata Rama Krishna Raju Dandu, Whole-time Directorl
4. Venkatasita Ramaraju Kanumuri, Whole-time Director
Appellants
Date of hearing : 07.02.2023
Present : Mr. Saroj K Sahoo, PCS
ORDER
This is an appeal filed under section 454(5) of the Companies Act, 2013 by the above appellants in e-form ADJ vide SRN F50833243 dated 30.11.2022 against the adjudication order No. ROC(V)/ADJ/454(4) 2022-23 dated 08.09.2022 under section 454 passed by the Registrar of Companies, Andhra Pradesh for default in compliance with the requirements of Section 203(1) read with Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.
2. Registrar of Companies in his order of adjudication has stated that the company has failed to appoint Company Secretary since the applicable provisions of the Act came into force to till date despite paid up capital has exceeded the prescribed limit as stated in the provisions of section 203(1) of the companies Act, 2013. Hearing was held before Registrar of Companies on 08.09.2022 and after hearing the authorized representative had levied a penalty of Rs.5.00 Lakhs on the Company and Rs.50,000/- each for 4 directors i.e., Venkata Subbaraju Gottumukkala, Siva Venkata Rama Krishna Raju Dandu, Venkatasita Ramaraju Kanumuri and Jagarlamudi Suresh Babu (total aggregating to Rs.7.00 Lakhs).
3. An opportunity of being heard was given to the Appellants on 07.02.2023 by the then Regional Director. The authorized representative Mr. Saroj K Sahoo, Practicing Company Secretary appeared on behalf of the appellants and reiterated the submissions made in the appeal and also submitted that the new management has taken over the company with effect from 2016 and the company has not yet started any commercial operations. Further the company is making losses all along considering the issue management sold all the fixed assets and there is remote chance of any future business growth, sustainability. It is also stated that company is having Whole Time Directors (3 in no) and other director should not have been charged for any violation of this nature. Despite all these conditions the Company has appointed Puja Jaiswal as Company Secretary of the Company with effect from 08.2022 and complied with the provisions of Section 203 of the Companies Act, 2013 and requested to reduce the quantum of penalty as levied by Registrar of Companies with regard to Company and 3 officers i.e., Venkata Subbaraju Gottumukkala, Siva Venkata Rama Krishna Raju Dandu and Venkatasita Ramaraju Kanumuri and also to waive off the penalty as imposed for Jagarlamudi Suresh Babu, Director.
4. Taking into consideration the facts of the appeal and submissions made by the authorized representative. Penalty as imposed by Registrar of Companies is reduced by the then Regional Director for the Company to Rs.50,000/- and for 3 Whole Time Directors i.e., Venkata Subbaraju Gottumukkala, Siva Venkata Rama Krishna Raju Dandu and Venkatasita Ramaraju Kanumuri to Rs.25,000/- each (total aggregating to Rs.1,25,000/-) and setting aside the penalty imposed for Jagarlamudi Suresh Babu, Director as the Company is having a Whole Time Directors who looks after the job of day-to-day activities. The appellants are directed to comply with this order and also provisions of Section 454(8) of the Companies Act, 2013 read with Companies (Adjudication of Penalties) Rules, 2014.
5. The, penalty was paid by the Company amounting to Rs.50,000/- and by 3 officers i.e., Venkata Subbaraju Gottumukkala, Siva Venkata Rama Krishna Raju Dandu and Venkatasita Ramaraju Kanumuri to Rs.25,000/- each (total aggregating to Rs.1,25,000/-) vide SRN X50151695 dated 16.08.2023. Accordingly, this order is issued to the Appellants with a copy to Registrar of Companies, Andhra Pradesh and Joint Secretary, E-Governance Cell, Ministry of Corporate Affairs, New Delhi for information and necessary action.
Issued under my hand and seal on this the 12th day of September 2023.
M/s Natsol Laboratories Private Limited
35, Gollajaggarajupeta, Greencity Visakhapatnam
Andhra Pradesh- 530046.
(DR. RAJ SINGH)
REGIONAL DIRECTOR (SER)
HYDERABAD
