RoC Imposed Penalty on Directors for Failure to Furnish Disclosure of Interest in Form MBP 1

The Company conducted its first Board Meeting on 1st April, 2022 for FY 2022-23 and the 2 directors of the company failed to provide their disclosure of interest in such board meeting. Similarly, during FY 2023-24, the Company conducted its first Board Meeting and 3 directors of the company failed to provide the necessary disclosure of Interest. Therefore, as per Section 184(1) of the Companies Act, 2013, the penalty would be imposed on the officers of the company for 02 Board Meetings held on specified dates. The Company Suo-moto applied for adjudication in e-form GNL-1 under section 454 of the Companies Act, 2013 for violation of 184 (1).

On perusal RoC Delhi held that the 2 directors of the company have failed to give their disclosure of interest in the first board meeting of F.Y. 2022-23 and 3 directors failed to give their disclosure of interest in the first board meeting of F.Y. 2023-24. This resulted in non-compliance of section 184(1) of the Act. Therefore, RoC imposed a penalty of INR 5 Lacs on all the directors who failed to disclose their interest.

1. Brief facts of the case:

• M/s Fluence Bess India Private Limited (“The Company”) is having its registered office in Delhi.

• During F.Y. 2022-23, the Company conducted its first Board Meeting on 1st April, 2022 and the 2 directors of the company were required to give their disclosure of Interest in other companies of body corporates in prescribed form. However, such directors failed to provide the necessary disclosure of interest. 

• Further, During FY 2023-24, the Company conducted its first Board Meeting on 22nd August, 2023 and 3 directors of the company were required to give their disclosure of Interest in other companies of body corporates in prescribed form. However, they failed to provide the necessary disclosure of Interest. 

• Therefore, as per Section 184(1) of the Companies Act, 2013, the penalty would be imposed on the officers of the company for 02 Board Meetings held on specified dates.

• The Company Suo-moto applied for adjudication in e-form GNL-1 under section 454 of the Companies Act, 2013 for violation of 184 (1).

2. Relevant Legal Provisions:

Relevant provisions of the Companies Act, 2013 is reiterated below for ready reference:

184. Disclosure of Interest by Director

“(1) Every director shall at the first meeting of the Board in which he participates as a director and thereafter at the first meeting of the Board in every financial year or whenever there is any change in the disclosures already made, then at the first Board meeting held after such change, disclose his concern or interest in any company or companies or bodies corporate, firms, or other association of individuals which shall include the shareholding, in such manner as may be prescribed.

…

(4) If a director of the company contravenes the provisions of sub-section (1) or sub-section (2), such director shall be liable to a penalty of one lakh rupees.”

3. Findings by Hon’ble Delhi RoC

The Delhi RoC made following findings:

• The Company has filed suo-moto adjudication application for non-compliances of 184(1) of the Act.

• An e-SCN was issued to the company and its officers for the default u/s 184(1) of CA, 2013. The notices did not submit any response against the SCN within a 15 days timeframe. Later on, the Company acknowledged the non-compliance.

• Further, due to multiple non-compliances, it was observed that there was a requirement of calling some additional information in the matter and therefore, a notice u/s 206(1) was issued. 

• Against such a reply, the Company submitted the copy of MBP-1 filed by 2 directors on 01.04.2022 and MBP-1 filed by another 3 directors.

• On perusal, it appeared that it is a failure on part of the company and its board of director for not taking note of the MBP-1 submitted by directors. 

• The company and the directors concerned submitted that these MBP-1 were inadvertently not submitted by them to the Company and this resulted in procedural lapse of section 184 of CA, 2013. 

• Therefore, in view of the above, the 2 directors of the company have failed to give their disclosure of interest in form MBP-1 to the company in the first board meeting of F.Y. 2022-23 and 3 directors failed to give their disclosure of interest in form MBP-1 to the company in the first board meeting of F.Y. 2023-24. 

• This resulted in non-compliance of section 184(1) of the Act, and the penalty is levied on the officers-in-default of the company as per section 184(4) of the Act subject to the condition that the same is disclosed in the coming Board Report to maintain the necessary disclosures under Corporate Governance. 

4. Penalty Imposed

The Hon’ble Delhi RoC imposed following penalties on the directors:

5. Requirements of Section 184 of the CA, 2013

As per Section 184(1) of the Companies Act, 2013 read with Rule 9 of The Companies (Meetings of Board and its Powers) Rules, 2014:

1. Every director shall disclose his concern or interest in any company or companies or bodies corporate by giving a notice in writing in Form MBP-1,

2. It is the duty of the director giving notice to cause it to be disclosed at the board meeting held immediately after the date of the notice.

6. Conclusion

Every company incorporated under Companies Act, 2013 is mandatorily required to adhere to the provisions of this Act and any non-compliance will lead to penalty actions and unnecessary time consumption in proceedings. In the given case, the Directors failed to make disclosure of their interest in other companies during the first board meeting of the company and consequently a penalty of INR 5 Lacs is imposed on all the directors. 

Section 184(1) of the Act specifically requires that every director shall at the first Board Meeting and thereafter at the first board meeting of every financial year or every board meeting held after any change in the disclosures made earlier shall be required to disclose his concern or interest in any company or companies or bodies corporate in such manner as may be prescribed. 

The company and its directors should ensure absolute compliance to avoid such penalties and also a considerable amount of time spent in litigation. Therefore, the Companies are required to take expert opinions about legal compliances. Our team at V J M Global holds expertise in Company law matters and provides assistance to ensure compliance with company law.