Corporate Law Daily
Dear Reader,
Today’s newsletter analytically summarizes the top Corporate Law stories reported at?taxmann.com.
1. Appointment of company secretary
As per the amended Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 from the financial years commencing on or after 1st April, 2020 by the Ministry of Corporate Affairs (MCA) dated 03rd January, 2020, (a) every listed company, (b) every other public company having a paid-up share capital of Rs. 10 crores or more and (c) private company having a paid-up share capital of Rs. 10 crores or more are required to appoint a whole -time company secretary. ( It may be noted that, prior to the above amendment, every company which has a paid-up share capital of Rs. 5 crores or more was required to appoint whole -time company secretary (private and public both)
The company secretary is a key managerial person by virtue of section 2(51) of the Companies Act 2013. In the case of listed companies, the LODR regulation 2(o) states that key managerial personnel means KMP as defined by section 2(51) of the Companies Act 2013. The Companies Act and LODR regulation – both have the same provisions relating to key managerial personnel which includes the company secretary.
2. Time limit for filling up the vacancy of KMP
As per section 203 (4) of the Companies Act 2013, if the office of any key managerial personnel (which includes the position of company secretary), the resulting vacancy is required to be filled up by the board at the meeting of the board within a period of six months from the date of such vacancy.
3. Relevant provisions of the Companies Act
The following are the relevant provisions under the Companies Act 2013 on this matter.
Section 203(1):- Every company belonging to such class or classes of companies as may be prescribed shall have the following whole-time key managerial personnel:-
(i) Managing director or Chief Executive Officer or Manager and in their absence, a whole-time director;
(ii) Company secretary and
(iii) Chief Financial Officer.
Section 203(4):- ?If the office of any whole-time key personnel is vacated, the resulting vacancy shall be filled up by the board at the meeting of the board within a period of six months from the date of such vacancy.
4. Penal provisions for default/violation
As per the provisions of sub-section (5) of section 203 of the Companies Act 2013,
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 for a penalty of fifty thousand rupees and where the default is continuing one, with a further penalty of one thousand rupees per each day after the first during which such default continues but not exceeding five lakh rupees.
5. Consequences of default/violation – action from the Regulator
To understand the consequences of any default in complying with section 203 of the Companies Act 2013 relating to filing up the vacancy of the position of the company secretary within the prescribed time limit, let us go through one of the decided case law on this matter very recently – during the month of September 2022 - by the Registrar of Companies of Mumbai.
6. The relevant case law on this matter
We shall go through a case law relating to an adjudication order passed by the Registrar of Companies, Mumbai who was the Adjudicating officer in this case, bearing No.ROC-M/RS/ADJ/ order 322041/479 to 482 217 to 22 dated 23rd September 2022 in the matter of Adjudication of Penalty under section 454 of the Companies Act 2013, 2014 for violation of section 203 in the matter of M/s Elanco India Private Limited
7. Details of the company
M/s. Elanco India Private Limited, a subsidiary of a foreign company incorporated on 3rd November 2014 has its registered office at Western Edge 1, Unit 201, 2nd Floor, Near Western Express Highway, Borivali (East) Mumbai in the state of Maharashtra. The company falls under the jurisdiction of the Registrar of Companies is of Maharashtra and the Registrar of Company is situated in Mumbai. The company is
In the business of animal health dedicated to innovating and delivering products and services to prevent and treat disease in farm animals and pets. The company is having three directors on its board and the company is also having a whole-time company secretary.
8. Facts of the case
(a) The company secretary had a whole time company secretary who has resigned from the services of the company with effect from 20th March 2021.
(b) As per the provisions of section 203(a) of the Companies Act, 2013 the Company is required to fill up the vacancy and appoint a whole time Company Secretary within a period of six months from the date of such vacancy i.e., latest by 20th September 2021
(c) However, the company appointed a whole-time company secretary only on 20th January 2022 with a delay of 122 days beyond the prescribed time limit by the provisions of the Companies Act 2013.
(d) The delayed appointment of the company secretary has resulted in the violation of provisions of section 203 of the Companies Act 2013.
(e) As per section 203(5) of the Companies Act, 2013, the company and its directors are liable for penal actions.
9. Action by the company after the default committed
Upon filling up the vacant position of the company secretary, the company has filed an application for adjudication for violation of a provision of section 203 of the Companies Act 2013 read with section 8A of Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014. In the application filed by the company, admitted the delay in appointing the company secretary for the period 20th September 2021 to 20th January 2022 (a delay for a period of 122 days). The company stated in the application that the delay has resulted since they could not find a suitable candidate. The company requested in the application that lesser fees may be levied.
10. Regulatory action – the issue of personal hearing notice and reply by the company
The Registrar of Companies, upon receipt of the application and also going through the records at the MCA portal, ascertained the fact that the company has committed the violation and issued a written notice for a personal hearing fixed the date of hearing as 29th August 2022.
On the appointed day of the personal hearing i.e., on 29th August 2022, the duly authorized practising company secretary by the company attended the hearing. The practising company secretary submitted that the company has complied with the provisions of section 203 of the Companies Act 2013 by appointing a whole-time company secretary effective from 20th January 2022. The practising company secretary further made the submission that the managing director should be considered as the officer in default and made a request for levying a lesser penalty on the other two whole-time directors of the company.
11. Findings and observations by the Registrar of Companies
The Registrar of Companies after going through the application submitted by the company came to the conclusion that:-
12. Order passed by the Registrar of Companies
The following order was passed by the Registrar of Companies / Adjudicating officer of Mumbai on this matter.
1. The Registrar of Companies who is the Adjudicating Officer after having considered the facts and circumstances of the case and after taking into account the factors above, imposed a penalty on the company and its directors in default as per the table below for violation of provisions of section 203 of the Companies Act 2013, for default of 122 days. While passing the order the Registrar of Companies stated that he is of the opinion that the penalty imposed is commensurate with the aforesaid failure committed by the company and its directors.
2. The order directed that the company/directors shall have to pay the amount of penalty through the Ministry of Corporate Affairs Portal and proof of payment be produced for verification within 30 days of receipt of the order.
3. The order stated that an appeal against this order may be filed in writing with the Regional Director (Western Region) within a period of sixty days from the date of receipt of this order in form ADJ setting forth the grounds of appeal and shall be accompanied by a certified copy of this order.
4. The order further drew the attention to section 454 (8) (i) of the Companies Act 2013, where an officer of a company who is in default does not pay the penalty within a period of ninety days from the date of receipt of the copy of the order, such officer shall be punishable with imprisonment which may extend to six months or with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees or with both. Regarding consequences of non-payment of the penalty within the prescribed time limit of ninety days from the date of receipt of this order in terms of the provisions of section 454(8)(i) of the Companies Act, 2013, where the company does not pay the penalty imposed by the Adjudication Officer or the Regional Director within a period of ninety days from the date of receipt of the copy of the order the company shall be punishable with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees.
5. The order pointed out that, in case of default in payment of a penalty, the prosecution will be filed under section 454(8) (i) and (ii) of the Companies Act, 2013 at the cost of the company/directors without any further notice.
13. Despatch of the order
The order was sent by the Registrar of Companies in terms of the provisions of sub-rule (9) of Rule 3 of Companies (Adjudication of Penalties) Rules 2014 as amended by Companies (Adjudication of Penalties) Amendments Rules 2019 to the company and its directors and also to the Regional Director, (WR), Ministry of Corporate Affairs, Mumbai – for his information.
14. Complete order for reading
The readers may like to read the complete order passed by the Registrar of Companies, Mumbai who was the Adjudicating officer in this case, vide order no. ROC-M/RS/ADJ_Order 322041/479 to 482 217 to 22 dated 23rd September 2022 in the matter of Adjudication of Penalty under section 454 of the Companies Act 2013, 2014 for violation of section 203 in the matter of M/s Elanco India Private Limited and the relevant website is as provided below:- https://www.mca.gov.in/ content/ mca/global/en/data-and-reports/rd-roc-info/rocadjudication-orders.html
15. Conclusion
The position occupied by a company secretary is a senior position in a private-sector company or public-sector organization. The company secretary is responsible for the efficient administration of a company, particularly with regard to ensuring compliance with the required statutory and regulatory requirements with respect to applicable acts, rules and regulations and for ensuring that decisions of the board of directors are implemented.
In light of the above, companies need to ensure that the vacant position of the company secretary is filled up as early as possible so that compliance does not get affected, without waiting for the time of six months as provided by the regulators.
References:-
In the instant case, an insolvency professional (IP) was appointed as a Resolution Professional (RP) in respect of the CIRP of the corporate debtor u/s 7 of the IBC. The IBBI appointed an Inspecting Authority (IA) to conduct an inspection of the IP on the ground that the IP had contravened provisions of the Code, Regulations, and directions.
Thereafter, the IA requested IP to provide copies of documents/clarifications. It was observed that despite repeated reminders, additional documents/clarifications asked by the Authority were not provided by the IP. Further, it was observed that corporate debtors had given huge advances without any agreement and without any return on investment but no steps were taken by IP.
As per Regulation 4(4) of the Inspection Regulations, it shall be the duty of the service provider to produce before the IA documents, records, or information in his custody or control and furnish to the IA such statements and information relating to its activities within such time as the IA may require.
Another contravention was that CoC in its meeting decided to appoint two registered valuers to value the financial assets of the corporate debtor and also ratified the fees to be paid to the valuers so appointed. Even when the appointment of the registered valuers as well as fees to be paid to such valuers was approved by the CoC, valuers were not appointed by IP which was in violation of Regulation 27 of CIRP Regulations.
Also, the Board Circular No. IP/005/2018 dated 16-1-2018, mandated IP to disclose his relationship, if any, with the corporate debtor, and with other professional(s) engaged by him to Insolvency Professional Agency of which he is a member, within 3 days of his appointment. However, it was observed from the website of the Indian Institute of Insolvency Professionals of ICAI with which IP enrolled, that disclosures were made with a substantial delay.
IBBI held that IP failed to understand provisions of the Code and Regulations in letter and spirit as statutory duties had not been performed meticulously and carefully by IP. Therefore, IP was directed to not accept any new assignment till successful completion of the pre-registration educational course of IBBI (Insolvency Professional) Regulations, 2016 from IPA and work for at least three months as an intern with a senior IP.
That’s it from us for today! Stay Tuned for more updates from?Taxmann.com
The Golden Standard for Insolvency & Bankruptcy Code in India by Taxmann – Introducing Taxmann’s most updated & amended section-wise Commentary on IBC, 2016!
Look inside the book here:?https://taxmann.social/TeiMk
Like It? Buy Now with Free Expedited Shipping & Get a Limited Period Discount!?https://taxmann.social/XeiZh
CFO | Financial Analyst | Data Analyst | Financial Modeling | Tax expert | Structure accounts & finance for Startup company | Design & implement internal controls
2 年Hi Taxmann, Well done for the information. I will appreciate, if I can be getting your daily newsletter via [email protected]