Violation of Section 180(1)(c) of Companies Act, 2013 – MCA Imposes Penalty

Introduction: The Ministry of Corporate Affairs (MCA) has wielded its regulatory authority against M/s SACS Infotech Private Limited for a breach of Section 180(1)(c) of the Companies Act, 2013. This adjudication outlines the circumstances, violation details, and the ensuing penalties imposed by the MCA.

Detailed Analysis:

1. Background and Company Information:

• M/s SACS Infotech Private Limited, incorporated in 2000, falls under the jurisdiction of the Registrar of Companies, Chennai.
• The company came under scrutiny, leading to a Show Cause Notice issued on 20.07.2021 for alleged violations of Section 180(1)(c) of the Companies Act, 2013.

2. Section 180(1)(c) Violation:

• Section 180(1)(c) restricts the powers of the Board of Directors, requiring consent through a special resolution for specific actions, including borrowing money.
• The violation pertains to the company’s failure to pass a special resolution for availing a loan exceeding the prescribed limits.

3. Observations and Inquiry Findings:

• The Inquiry Officer observed discrepancies in the balance sheets for the financial years 2014, 2015, and 2016.
• Unsecured long-term borrowings, labeled as “Due to Directors,” exceeded permissible limits without the requisite special resolution.

4. Violation Acknowledgment and Hearing:

• The Regional Director directed action against the company, leading to an Adjudication Hearing Notice on 01.08.2023.
• Despite a request to postpone the hearing, it took place on 07.09.2023, where the company admitted the violation.

5. Legal Provisions and Penalty Imposition:

• Section 450 of the Companies Act, 2013 outlines penalties for contraventions where no specific penalty is provided elsewhere.
• The penalty for each day of continuing contravention can amount to one thousand rupees, with maximum limits for both companies and officers in default.

6. Penalty Breakdown:

• SACS Infotech Private Limited and its officers, including the Director and Managing Director, face penalties for multiple fiscal years.
• The penalties, totaling Rs. 90,000, are distributed based on the identified violations for each year.

7. Appeal Process and Default Consequences:

• Section 454(5) provides the right to appeal, with a stipulated timeframe and prescribed fees for filing an appeal.
• Non-payment within ninety days may lead to fines or imprisonment, as outlined in Section 454(8)(i) and (ii).

Conclusion: The case of M/s SACS Infotech Private Limited exemplifies the MCA’s commitment to enforcing strict adherence to regulatory provisions. The violation of Section 180(1)(c) underscores the importance of procedural compliance, particularly in matters involving financial transactions and special resolutions. Companies should heed this as a cautionary tale, emphasizing the need for meticulous adherence to statutory requirements to avoid penalties and legal consequences.

GOVERNMENT OF INDIA
MINISTRY OF CORPORATE AFFAIR
OFFICE OF REGISTRAR OF COMPANIES,
TAMIL NADU, ANDAMAN & NICOBAR ISLANDS, CHENNAI
II FLOOR, C- WING, SHASTRI BHAVAN,
26, HADDOWS ROAD, NUNGAMBAKKAM, CHENNAI- 6

F.NO.ROC/CHN/SACS/ADJ/S.180/2023

Date: 13 OCT 2023

ORDER OF ADJUDICATION OF PENALTY UNDER SECTION 454 OF THE COMPANIES ACT, 2013 READ WITH RULE 3 OF THE COMPANIES (ADJUDICATION OF PENALITES) RULES 2014 FOR VIOLATION OF PROVISIONS OF SECTION 180(1)(C) OF THE COMPANIES ACT, IN THE MATTER OF M/S SACS INFOTECH PRIVATE LIMITED

1. In the matter of M/s SACS Infotech Private Limited (CIN U52391TN2000PTC044744) incorporated on 17/04/2000 under the jurisdiction of Registrar of Companies, Chennai with the registered office situated at Vigneshwar Apartments, Old No.3, New No.9, Periyar Road, T.Nagar, Chennai – 600 017. Tamilnadu, India.

2. Whereas the company was taken up for Inquiry by an Officer authorized by the Central Government and this office had issued Show Cause Notice vide letter dated 20.07.2021 for violation of Section 180(1) (c) of the Companies Act, 2013

3. Whereas pursuant to sub-section (1)(c) of Section 180 of the Companies Act 2013, which read as under:

“180. Restrictions on Powers of Board.

(1) The Board of Directors of a company shall exercise the following powers only with the consent of the company by a special resolution, namely:

(c) to borrow money, where the money to be borrowed, together with the money already borrowed by the company will exceed aggregate of its paid-up share capital and free reserves and securities premium]. apart from temporary loans obtained fr4km the company’s hankers in the ordinary course of business:

4. Whereas the Inquiry Officer has observed during the Inquiry that, the balance sheet as at 31.03.2014,31.03.2015 & 31.03.2016 under the under note 3 – long term Borrowings under head of Unsecured – Due to Directors, shown as Mr. Pari – Rs.15,94,938 and Mrs. Suganthi Pani – Rs. 50,44,781 respectively. The company has to pass a special resolution to avail a loan exceeding 60 % of paid up capital and free reserves and 100% of free reserves. As per Balance sheet, the company is having paid up capital Rs. 65 lakhs and reserves and surplus are in negative. The company has not passed any special resolution in this regard as per data base of MCA portal hence, the company has violated the provisions of Section 180(1) (c) of the Companies Act,

5. Whereas Regional Director, (SR), Chennai vide letter dated 27.06.2018 issued directions to initiate action against the company and its officers in default and the undersigned has reasonable cause to believe that the aforesaid provisions of the Act have not been complied with, and accordingly this office had issued Adjudication Hearing Notice to the Company and its Directors on 01.08.2023 fixing the hearing date as 07/08/2023.

6. Whereas in response to the hearing notice dated 01.08.2023, this office has received email dated 05.08.2023 from the Company requesting to postpone the hearing. The request has been considered by the undersigned and the hearing has been rescheduled on 07.09.2023 at 11.30 A.M. Pursuant to final hearing notice, Shri R. Thamizhvanan. (Practicing Company Secretary), Authorized by the company and directors appeared before the undersigned and made submissions that, “the said violation may be adjudicated and accepted to pay the penalty as prescribed u/s 180(1)(C) of the Companies Act, 2013.”

7. Whereas as per section 450 of the Companies Act, 2013, which read as under:-

“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 fif0^, thousand rupees in case of an officer who is in default or any other person.”.”

8. Shri R. Thamizhvanan. (PCS), Authorized Representative admitted the violation and hence following penalty referred to in Para No.7 is imposed on the applicant for the violation of Section 134(3)(m) of the Companies Act, 2013 read with Rule 8(3)(B)(i) to (ii) of the Companies (Accounts) Rules, 2014.

Therefore in view of the above said violation of the undersigned in exercise of the powers vested to him under Section 454(1) & (3) of the Companies Act, 2013.Hereby impose a penalty of Rs. 30,000/- to the company and Rs.30 000 /- each to the officer in default (Totaling Rs.90,000/- as penalty amount).

9. Whereas sub-section (5) of section 454 of the Companies Act,2013 provides that any person aggrieved by an order made by the adjudicating officer under sub-section(3) may prefer an appeal to the Regional Director having jurisdiction in the matter and further sub-section(6) provides that every appeal under sub-section(5) shall be filed within sixty days form the date on which the copy of the order made by, the adjudicating officer is received by the aggrieved person and shall be in such harm. manner and be accompanied by such fees as ma,u0v prescribed.

10. Please note that as per Section 454(8) (i) of the Companies Act, 2013, Where company does not pay the penalty imposed by the adjudicating officer or the Regional Director within a period of ninety days from the date of the receipt of the copy of the order, the company shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees.

(ii)Where an officer of a company who is in default does not pay the penalty within a period of ninety days from the date of the receipt of the copy of the order, such officer 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.

In case of default in payment of penalty, prosecution will be filed under section 454(8) (i) and (ii) of the Companies Act, 2013 at your own costs without any further notice. Alongwith the penalty to be imposed and the same should be submitted.

B. SRIKUMAR,
ICLS REGISTRAR OF COMPANIES
TAMILNADU, CHENNAI.
ADJUDICATING OFFICER