RoC, Puducherry Imposed Penalty of INR 15 Lacs On Private Company On Delay in Appointment Of Whole Time Company Secretary

Held by Office of the Registrar of Companies, Puducherry

In the matter of M/s Siva Valli Vilas Jewellers Private Limited

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M/s Siva Valli Vilas Jewellers Private Limited (“The Company”) is having registered office in the state of Pondicherry. The Company was having paid up share capital of INR 20.42 crores. The Company appointed a whole time Company secretary in practice on 4th January, 2021 and he moved out of the company with effect from 1st April, 2021. As per provisions of Section 203(4) of Companies Act read with Rule 8A of Companies (Appointment and Remuneration of Managerial Personnel) Rules. 2014, the company was required to appoint the whole-time company secretary on or before 2nd October, 2021, i.e., six months from the date of resignation. However, The company appointed the new company secretary with effect from 1st Feb, 2024. Accordingly, The Board of directors of the company failed to fill up the vacancy for the period of 03.10.2021 to 31.01.2024, causing a delay of 851 days.

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RoC imposed a penalty of INR 15,00,000/- on the Company and directors in default under Section 203(5) of Companies Act, 2013 for such non-compliance.

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1. Brief facts of the case

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• M/s Siva Valli Vilas Jewellers Private Limited (“The Company”) is having registered office in the state of Pondicherry.
• The Company was having paid up share capital of INR 20.42 crores.
• The Company appointed a whole time Company secretary in practice on 4th January, 2021 as required under Section 203(4) of Companies Act, 2013 read with Rule 8A of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.
• The Company secretary moved out of the Company with effect from 1st April, 2021.
• As per provisions of Companies Act, the Company was required to appoint the whole-time company secretary on or before 2nd October, 2021, i.e., six months from the date of resignation.
• The company appointed a new company secretary with effect from 1st Feb, 2024.
• The Board of directors of the company failed to fill up the vacancy for the period of 03.10.2021 to 31.01.2024, causing a delay of 851 days.
• Accordingly, the company violated the provisions of Section 203(4) of Companies Act, 2013 read with Rule 8A of Companies Rules.
• Accordingly, Registrar of Companies issued show cause notice to the company and its directors for violation of provisions of Companies Act.

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2. Relevant Legal Extract

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Relevant extract of the Company law is reiterated below for ready reference:

a. Section 203 of Companies Act is reiterated below:

“203. Appointment of Key Managerial Personnel

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(4) If the office of any whole-time key managerial personnel is vacated, the resulting vacancy shall be filled-up by the Board at a meeting of the Board within a period of six months from the date of such vacancy.

(5)If any company makes any default in complying with the provisions of this section, such company shall be liable to a penalty of five lakh rupees and every director and key managerial personnel of the company who is in default shall be liable to a penalty of fifty thousand rupees and where the default is a continuing one, with a further penalty of one thousand rupees for each day after the first during which such default continues but not exceeding five lakh rupees.”

B. Rule 8A of Companies (Appointment and Remuneration of Managerial Personnel) Rules. 2014

“8A Appointment of Company Secretaries in Companies Not Covered Under Rule 8

Every private company which has a paid up share capital of ten crore rupees or more shall have a whole -time company secretary.”

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3. Contention of the Company

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The Company contended that:

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• Whole-time company secretary could not be appointed due to non-availability of Company secretary in small geographical area for private limited company.
• However, the company accepted the default for jurisdiction.

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4. Order

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The Registrar of Company held that:

• As per Section 203(5) of Companies Act, 2013, if any company makes any default in complying with the provisions of Section 203 then following amount of penalty shall be levied:
  • On Company: INR 5,00,000/-
  • Every Director and key managerial personnel in default:
    • INR 50,000/- each
    • In case of continuing default: Further penalty of INR 1,000/- for each day during which default continues but not exceeding INR 5,00,000

• Accordingly, following penalty is imposed:

Violation under Companies Act, 2013Person on whom penalty is imposedNo. of days for which default continues(03.10.2021 to 31.01.2024)Total Default AmountMaximum PenaltyPenalty ImposedSection 203(5) of Companies ActCompany851500000-500000Managing Director85150000+851000(851*100)=951000500000500000Other Director in Default85150000+851000(851*100)=951000500000500000Total1500000

• The Company and directors are required to pay above mentioned amount of penalty within 90 days from the date of receipt of order.
• Appeal against the order can be filed with Regional Director (SR), MCA within a period of 60 days from the date of receipt of order.

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5. Consequences of Non-payment of Penalty Amount

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As per Section 454(8) of Companies Act, 2013, following shall be the consequences in case of non-compliance:

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1. If Company fails to comply with the order within a period of 90 days then the company shall be punishable with fine of minimum INR 25,000/- but which may extend upto INR 5,00,000/-
2. If any officer or any other person fails to comply with the order within a period of 90 days from the date of receipt or order then such office shall be punishable with imprisonment which may extend to 6 months or fine of minimum INR 25,000/- but which may extend to INR 1,00,000/- or both.