Adjudicating Order for Violation of Section 173 of the Companies Act, 2013 relating to Non-conducting of Meetings of Board of Directors of the Company

Reference of Section 173 of the Companies Act, 2013 (‘Act’) –Board Meetings

Section 173(1) of the Companies Act, 2013: Every company shall hold the first?meeting of the Board of Directors ?within 30 (Thirty) days from the date of its incorporation and thereafter hold a minimum of 4 (Four) meetings of its Board of Directors every year in such a manner that not more than 120 (One hundred and twenty) days shall intervene between 2 (Two) consecutive meetings of the Board.

Note: The following Companies are not required to comply with the above provision and are required to conduct at least one?Board meetings?in each half of a calendar year and the gap between the two meetings should not be less than ninety days.

1.One Person Company

2.Small Company

3.Dormat Company

4.Section 8 Company (shall hold at least one meeting within every six calendar months)

Facts of the case

The Registrar of Companies has after examination of the e-forms filed by a particular company, observed that the Company had not filed its Annual Return since incorporation, therefore there was no record of meetings of Board. It implies that the Company did not hold any Board Meetings during the year, failing which Section 173(1) of the Act was contravened.

Further, the Registrar of Companies issued show cause notice to the Company and its officers in default for violating the provisions of Section 173(1) of the Companies Act, 2013 and the Company had not reverted to the notice within the prescribed timelines. Therefore, the Company was made liable for penalty under section 450 of Act for the period commencing from Financial Year 2014-15 upto Financial Year 2021-22

Penalty Provision

Section 450 of the Companies Act, 2013 states that, “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, 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?maximum of two lakh rupees?in case of a company and?fifty thousand rupees?in case of an officer who is in default or any other person.”

Penalty Imposed by Registrar of Companies on Company and Officers in Default

The default period by the Company and two Directors was 8 Financial Years, and the default period by one Director was 2 Financial Years keeping into consideration his date of appointment as Director in the Company.

It was further being ascertained, if the Company could be considered a Small Companies and become eligible for reduced penalty. As per Clause 85 of Section 2 of the Act, a small company means a company whose paid up capital and turnover shall not exceed rupees four crore and rupees forty crore respectively. As per MCA portal, the paid up capital of the company was Rs 100,000 and as regard to turnover but the company had not filed its balance sheet since incorporation, hence the turnover could not be ascertained. Therefore, the benefits of the small company were not extended to this company while adjudicating penalty.

Having considered the facts and circumstances of the case and after taking into account the provisions of Rule-11 of Companies (Adjudication of penalties) Rules, 2014 (as amended), the office imposed a penalty of Rs. 80,000 (Eighty Thousand) on the Company and on each of the two Directors, and Rs. 20,000 (Twenty Thousand) on another director for violation of provision of section 173(1) of the Act from the financial year 2014-2015 to 2021-2022.

Refer the order passed-https://www.mca.gov.in/content/mca/global/en/data-and-reports/rd-roc-info/roc-adjudication-orders.html

Conclusion

Section 173(1) of the Act, 2013 has come into force from 1st April 2014. Hence, as per the provisions, Companies are required to conduct meetings of the Board and file the audited financial statements and Annual Return within the prescribed due dates, If not done within the due date, leads to violations of provisions and penal provisions gets attracted.

SimplyCorp ?is a solution that offers comprehensive and end-end management of Corporate Governance & Secretarial Compliances covering all stages of entity life cycle.?If want to know more on the compliance requirements and outsource the same to us, please write to our Product Head –?Vaishali Vohra?at the mail ID?[email protected] ?or?[email protected] .