RoC Imposed Penalty for Non Disclosure of Related Party Transaction in AOC-2

The Company has a registered office in the state of Telangana, Hyderabad. During the inquiry, it was found that as per the Board report, the Board of Directors has approved all related Party transactions, including salaries and lease rent paid to directors and their relatives during FY 2016-17, 2017-18, and 2018-19. However,  information about lease rent paid to the directors and their relatives was not given AOC-2 attached to the Board reports for the respective financial year.

Accordingly, the RoC held that the Company has contravened provisions of Section 134(3)(4) of the Act and is liable to a penalty under Section 134(8) of the Act. Therefore, RoC imposed a penalty of INR 18 Lacs on the Company and its officers in default for non-compliance with Section 134(3)(4) of the Act.

1. Brief Facts of the Case:

• M/s BGR Mining & Infra Limited (“The Company”) is a Company having its registered office in Telangana, Hyderabad.

• An inquiry of the Books of Accounts of the Company was carried out under section 206(4) of The Companies Act, 2013 (“The Act”);

• During inquiry, it was found that as per the Board report of FY 2016-17, 2017-18, and 2018-19, the Board of Directors has approved all related party transactions which have been entered into at Arm’s Length Price, including salaries and Lease rent paid to directors and their relatives;

• However, there is no information on lease rent paid to the directors and their relatives in AOC-2 attached to the Board reports for the respective financial year.

• The Company stated that such compliance was missed out inadvertently.

• Accordingly, the Company violated the provisions of Rule 134(3)(4) of the Act read with Rule 8(2) of the Companies (Accounts) Rules,2014.

• Therefore, the Company is liable to penal Action under Section 134(8) of the Act.

2. Relevant Legal Extract

Relevant Legal Extract of the Act is reiterated below for ready Reference:

• Section 134 of the Act is reiterated below:

“134. Financial Statement, Board’s Report, etc.

…

(3) There shall be attached to statements laid before a company in a general meeting, a report by its Board of Directors, which shall include—

…

(h) particulars of contracts or arrangements with related parties referred to in sub-section (1) of section 188 in the prescribed form;

…

(8) If a company is in default in complying with the provisions of this section, the company shall be liable to a penalty of three lakh rupees, and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees.”

3. Contention of the Company:

The Contention of the Company:

• Upon service of the Show Cause Notice, the Company filed an Adjudication application, which was later found defective and incomplete.

• The Company further contended that the information was missed out inadvertently, and the company did not have any malicious or fraudulent intention in not disclosing the same.

• The Company will pay the applicable penalties and shall comply with all applicable provisions of the Companies Act.

4. Findings and Analysis by RoC:

The Hon’ble Registrar of Companies made the following findings and analysis:

• The Company and its officers are liable for a penalty under Section 134(8) of the Companies Act, 2013;

• Accordingly, the following penalties are imposed on the company and its officers in default:

‍

1. FY 2016-17

2. FY 2017-18

3. FY 2018-19

‍

5. Conclusion

In the given case, the RoC imposed a penalty of INR 18 Lacs on the Company and its officers in default for non-disclosure of related party transactions in AOC-2 for 3 financial years. This demonstrates the Registrar of Companies' commitment to ensuring companies comprehend the significance of disclosure, with strict penalties imposed for non-compliance on both the company and its officers responsible.

‍