Violation of Section 89- Delay in filing of form MGT-4 – MCA Imposes Penalty

Introduction: The Ministry of Corporate Affairs (MCA) has recently imposed penalties on VALOR ADVISORY (INDIA) PRIVATE LIMITED for violating Section 89 of the Companies Act, 2013. This article delves into the details of the case, examining the delayed filing of form MGT-4 and the subsequent actions taken by the MCA.

Detailed Analysis:

1. Appointment of Adjudicating Officer: The MCA appointed the Registrar of Companies, NCT of Delhi & Haryana, as the Adjudicating Officer for penalizing violations under Section 89 of the Companies Act.

2. Company Details: VALOR ADVISORY (INDIA) PRIVATE LIMITED, incorporated on 23.12.2021, faced scrutiny for discrepancies in its shareholder declarations. Financial details, including paid-up capital and revenue, were assessed.

3. Facts about the Case:

• The company filed its Annual Return with discrepancies in shareholder details.
• A show cause notice under Section 89 was issued on 05.10.2023.
• The company responded, explaining the distinction between registered and beneficial owners.
• A hearing took place on 01.11.2023, with the company filing MGT-6 post-notice.

4. Relevant Provisions of the Act and Rules:

• Section 89 requires declarations regarding beneficial interest in shares.
• Rule 9 of Companies (Management and Administration) Rule, 2014, outlines filing procedures for MGT-4, MGT-5, and MGT-6.

5. Observations: The company’s submissions lacked merit as the filings revealed a distinction between registered and beneficial owners. While there was a delay, the company complied with Section 89(3) by filing MGT-6 within the stipulated time.

6. Adjudication of Penalty:

• Penalties were imposed on Ms. CHAN LYE YEE (registered owner) and VALOR MANAGEMENT SDN. BHD. (beneficial owner) for delays in filing MGT-4 and MGT-5, respectively.
• Detailed penalty calculations were provided as per Section 89(5).

7. Order:

• Parties were directed to pay penalties within 90 days.
• The subject company must ensure payment by both registered and beneficial owners.
• An appeal process and consequences of non-compliance were outlined.

Conclusion: The MCA’s imposition of penalties on VALOR ADVISORY sheds light on the importance of timely filings and adherence to Section 89. Companies must navigate regulatory requirements diligently to avoid legal consequences. This case serves as a noteworthy example of MCA’s commitment to upholding corporate governance standards.

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GOVERNMENT OF INDIA
MINISTRY OF CORPORATE AFFAIRS,
OFFICE OF REGISTRAR OF COMPANIES,
NCT OF DELHI & HARYANA
4T11 FLOOR, IFCI TOWER, 61, NEHRU PLACE,
NEW DELHI -110019

ORDER OF PENALTY PURSUANT TO SECTION 89 OF THE COMPANIES ACT, 2013 IN THE MATTER OF VALOR ADVISORY (INDIA) PRIVATE LIMITED (U74999DL2021FTC391661)

1. Appointment of Adjudicating Officer: ‑

Ministry of Corporate Affairs vide its Gazette Notification No. A-42011/112/2014- Ad.II, dated 24.03.2015 appointed Registrar of Companies, NCT of Delhi & Haryana as Adjudicating Officer in exercise of the powers conferred by section 454(1) of the Companies Act, 2013 (hereinafter known as Act) r/w Companies (Adjudication of Penalties) Rules, 2014 for adjudging penalties under the provisions of this Act.

2. Company: ‑

Whereas the company viz. VALOR ADVISORY (INDIA) PRIVATE LIMITED (herein after known as ‘company’) has been incorporated on 23.12.2021 and having its registered office as per MCA21 Register address at B-25 SAGAR APARTMENT,6 TILAK MARG, DELHI, Central Delhi, Delhi, 110001. The financial & other details of the subject company for the year ended 31^st March, 2023 as available on MCA-21 portal is stated as under:

3. Facts about the Case: –

(i) It is observed from the record that company has filed its Annual Return for F.Y. 2022-23 vide eform MGT-7 (SRN F63721229) wherein it is mentioned that VALOR MANAGEMENT SDN. BHD is holding 100% shares in the subject company. However, it is seen that company has in total 2 (two) shareholders. Therefore, the beneficial holder and the registered holder ought to have declared the status of their interest in the shares in terms of Section 89(1) and Section 89(2) of the Act. Further, it was also seen that the company has not filed MGT-6 in term of Rule 9 (3) of Companies (Management and Administration) Rule, 2014 with this office.

(ii) In view of above facts, a show cause notice u/s 89 of the Act was issued to the company vide dated 05.10.2023

(iii) In response to the said SCN, a reply has been received from thecompany on 17.10.2023 which inter alia states as under:

(a) The requirement for declarations in Form MGT-4, MGT-5 and MGT-6 arises when there is a distinction between the registered owner and the beneficial owner of shares, and this fact is not known to the company. In our case Mr. Chan Lye Yee is holding 1 share in the company as a nominee on behalf of VALOR MANAGEMENT SDN. BHD and not as registered owner of the share and this fact is known to the RoC and the company from the inception of the company

(b) To avoid any further legal dispute and for the sake of brevity the company has filed form MGT-6 vide SRN F68464908 on 10.2023.

(iv) Further, in view of submissions made in reply, a hearing in the matter was scheduled for oral submissions on 01.11.2023 wherein Mr. Sumit Raj, Practising Company Secretary and Authorised representative (AR) of the Company appeared for hearing and submitted as under:

The Authorised representative of the company submitted that section 89 is not applicable in the present matter. However, to avoid any legal dispute the company has filed e-form MGT-6 subsequent to the receipt of notice u/s 89 of this office.

(v) It is seen that company has filed form MGT-6 vide SRN F68464908 on 16.10.2023. Form MGT-4 and MGT-5 have been filed as attachments. While form MGT-4 has been signed by Ms. CHAN LYE YEE, it is not clear as to who has signed form MGT-5 on behalf of beneficial owner. The AR has stated that MGT-5 has actually been signed by Mr. EUGENE LEE on behalf of the parent company. Thus, AR was asked to produce all the details pertaining to MR. Eugene and also state how he has connected to the holding parent company.

(vi) In response to the hearing held, a reply has been received from the AR of the company which states as follows:

(a) Mr. EUGENE LEE CHENG HOE is the director of the Holding Parent company namely VALOR MANAGEMENT SDN. BHD. registered in Malaysia.

(b) Company has received declarations under form MGT-4 and MGT-5 through email dated 16.10.2023.

4. The relevant provision of the Act and Rules therewith:

Section 89. Declaration in respect of beneficial interest in any share:

(1) Where the name of a person is entered in the register of members of a company as the holder of shares in that company but who does not hold the beneficial interest in such shares, such person shall make a declaration within such time and in such form as may be prescribed to the company specifying the name and other particulars of the person who holds the beneficial interest in such shares.

(2) Every person who holds or acquires a beneficial interest in share of a company shall make a declaration to the company specifying the nature of his interest, particulars of the person in whose name the shares stand registered in the books of the company and such other particulars as may be prescribed.

(5) If any person fails to make a declaration as required under sub-section (1) or sub-section (2) or sub-section (3), he shall be liable to a penalty of fifty thousand rupees and in case of continuing failure, with a further penalty of two hundred rupees for each day after the first during which such failure continues, subject to a maximum of five lakh rupees.

(6) Where any declaration under this section is made to a company, the company shall make a note of such declaration in the register concerned and shall file, within thirty days from the date of receipt of declaration by it, a return in the prescribed form with the Registrar in respect of such declaration with such fees or additional fees as may be prescribed.

(7) If a company, required to file a return under sub-section (6), fails to do so before the expiry of the time specified therein, the company and every officer of the company who is in default shall be liable to a penalty of one thousand rupees for each day during which such failure continues, subject to a maximum of five lakh rupees in the case of a company and two lakh rupees in case of an officer who is in default.

Rule 9 of Companies (Management and Administration) Rule, 2014

(1) A person whose name is entered in the register of members of a company as the holder of shares in that company but who does not hold the beneficial interest in such shares (hereinafter referred to as 9 “the registered owner”), shall file with the company, a declaration to that effect in Form No.MGT.4 in duplicate, within a period of thirty days from the date on which his name is entered in the register of members of such company:

(2) Every person holding and exempted from furnishing declaration or acquiring a beneficial interest in shares of a company not registered in his name (hereinafter referred to as “the beneficial owner”) shall file with the company, a declaration disclosing such interest in Form No. MGT.5 in duplicate, within thirty days after acquiring such beneficial interest in the shares of the company:

(3) Where any declaration under section 89 is received by the company, the company shall make a note of such declaration in the register of members and shall file, within a period of thirty days from the date of receipt of declaration by it, a return in Form No.MGT.6 with the Registrar in respect of such declaration with fee.

5. Observations

The submissions of the company have no merits as at one point of time it has been submitted that the distinction between the registered owner and the beneficial owner does not exist in the present case. However, when the company filed the form MGT-6, it clearly indicated that the individual is a registered owner and not a beneficial owner in respect of the sole share. The foreign holding company (based in Malaysia) has also declared that in respect of that sole share, the beneficial interest lies with the Malaysian company. Therefore, the obligations u/s 89 are clearly attracted in respect of registered owner, beneficial owner and concerned Indian company. The facts suggest that while there has been considerable delay in submitting form MGT-4 and form MGT-5 to the company by registered owner and beneficial owner respectively, the subject company on its part has complied with the provision of Section 89(3) of the Act by filing e-form MGT-6 within the stipulated time period.

6. Adjudication of Penalty: –

(i) Ms. CHAN LYE YEE as registered owner was entered in the register of member on 31.03.2022 and accordingly was required to file declaration in form MGT-4 on or before 30.04.2022. But the said declaration in form MGT-4 has been given on 16.10.2023 with a delay of 534 days by the registered owner. Hence, the registered owner is liable for penalty for violation of Section 89(1) of the Act.

(ii) VALOR MANAGEMENT SDN. BHD. as a beneficial owner was entered in the register of member on 31.03.2022 and was accordingly required to file declaration in form MGT-5 on or before 30.04.2022. But the said declaration in form MGT-5 has been given on 16.10.2023 with a delay of 534 days by the beneficial owner. Hence, the beneficial owner is liable for penalty for violation of Section 89(2) of the

(iii) The subject company does not get covered under the purview of small company as defined u/s 2(85) of the Act. Hence, the benefit of section 446B would not be applicable on the company.

(iv) Now in exercise of the powers conferred vide Notification dated 24th March, 2015 and having considered the reply submitted by the noticee (s) in response to the notice issued on 20.10.2023, I do hereby impose the penalty on the company and its officers in default for violation of Section 89 of the Act:

Table-I

7. Order:

a. Names of parties as mentioned in the table I above are hereby directed to pay the penalty amount as per column no. ‘D’ therein.

b. The subject company namely VALOR ADVISORY (INDIA) PRIVATE LIMITED is required to ensure that the payment of the penalty amount be paid by registered owner and beneficial owner.

c. The said amount of penalty shall be paid through online by using the website www.mca.gov.in (Misc. head) in favor of “Pay & Accounts Officer, Ministry of Corporate Affairs, New Delhi, within 90 days of receipt of this order, and intimate this office with proof of penalty paid.

d. Appeal against this order may be filed with the Regional Director (NR), Ministry of Corporate Affairs, B-2 Wing, 2nd Floor, Paryavaran Bhawan, CGO Complex, Lodhi Road, New Delhi-110003 within a period of sixty days from the date of receipt of this order, in Form ADJ [available on Ministry website www.mca.gov.in] setting forth the grounds of appeal and shall be accompanied by a certified copy of the order. [Section 454(5) & 454(6) of the Act read with Companies (Adjudicating of Penalties) Rules, 2014].

e. Your attention is also invited to section 454(8) of the Act in the event of non-compliance of this order.

(Pranay Chaturvedi, ICLS)

Registrar of Companies

NCT of Delhi & Haryana

No. ROC/D/Adj/Order/89Nalor Advisory/ 4246-4249

Date: 16/11/23