Corporate Law Daily
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In the instant case, the Corporate Insolvency Resolution Process (CIRP) was initiated against the corporate debtor, and Resolution Professional (RP) was appointed. Later, he published an invitation for Expression of Interest (EoI) for the submission of a resolution plan. ?
The appellant-successful resolution applicant submitted its resolution plan, and the plan of the appellant was approved by the Committee of Creditors (CoC) with a 100 per cent voting share. The appellant, on being confirmed, also furnished a performance bank guarantee, and RP filed an application before NCLT seeking approval of the resolution plan of the appellant, however, in view of the outbreak of Covid 19 and the restriction on movement imposed, the hearing was not taken up. ?
Later, the Respondent placed a request before RP to submit a resolution plan, and the same was rejected by the RP on the grounds that the resolution plan of the appellant had already been approved by the CoC and an application for approval of the plan had already been filed by the RP before the Adjudicating Authority. ?
Consequently, Respondent filed an application before NCLT for approval of the resolution plan and to give directions to RP to place the resolution plan before CoC for its consideration. The NCLT disposed of the application filed by the appellant seeking approval of the resolution plan. ?
On appeal, the appellant submitted that the NCLT, without approving or rejecting the resolution plan of the appellant, disposed of the application filed by the appellant. ?
The appellant further submitted that the Respondent earlier submitted an EOI to submit a resolution plan for the corporate debtor, however, they backed out of the process and did not submit any resolution plan within date specified for submission of the resolution plan. The appellant also submitted that the CIRP period had already been concluded and no resolution plan could have been accepted thereafter. ?
Hon’ble NCLAT observed that the NCLT is not authorized to pass any order which would circumvent and attempt to frustrate the resolution plan pending before it for consideration. Further, NCLAT held that the respondent once backed out from participating in the resolution process, after completion of CIRP period their application could not be considered. ?
Therefore, the order of the NCLT allowing the application of respondent for consideration of their resolution plan was unsustainable and the same was to be set aside.
1. Post-incorporation compliance in a company
The subscribers to the Memorandum of Association of a company are considered as the first shareholders of the company when the company is incorporated. One of the post-compliances required by the company is to issue the share certificate to the subscribers of the Memorandum within two months from the date of incorporation.
The company should receive the share subscription money from the subscribers and thereafter the company is required to issue the share certificates i.e. the share certificates can only be issued after the receipt of money. Upon receipt of the subscription money, the company is mandatorily, required to issue the share certificates within a period of two months' time from the incorporation of the company. Later on whenever, further shares are allotted to the existing or new shareholders, the share certificates is required to be issued within two months from the date of allotment.
With respect to the above compliance requirement, the Companies Act 2013, spells out the provisions in its section?56?of the Companies Act, 2013.
2. Relevant provisions under the Companies Act 2013
Sub-section (4) (a) of section 56 of the Companies Act 2013 provides inter alia that every company shall, unless prohibited by any provision of law or any order of Court, Tribunal or other authority, deliver the certificate of all securities allotted, transferred or transmitted within a period of two month from the date of incorporation, in the case of subscriptions to the memorandum.
3. Penal provision for any default/violation under the Companies Act 2013
Sub-section (6) of section 56 of the Companies Act 2013, provides inter alia that where any default is made in complying with the provisions of sub sections (1) to (5), the company and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees.
4. Consequences of default/violation - action from the Regulator
To understand the consequences of any default while in complying with the provisions of section 56 of the Companies Act 2013, relating to timely delivery of the certificate of securities allotted, transferred or transmitted, let us go through the decided case law by the Registrar of Companies, Mumbai on this matter on 21st?October 2022.
5. The relevant case law on this matter
We shall go through the adjudication order passed by the Registrar of Companies of Mumbai on 21st?October 2022 in the matter of M/s IMC India Securities Private Limited, Mumbai city, order bearing no. No. ROC (M)/NJN/ADJ-ORDER/49361/2096-2099/RD-03 for penalty under Section?454(3)?of the Companies Act,2013 Read with rule 3 of companies (Adjudication of Penalties) Rules 2014 in the matter of non-compliance of the Provisions of sub-section (4) of section 56 of the companies, 2013.
6. Details of the company
6.?M/s. IMC India Securities Private Limited (a subsidiary of a foreign company) is a company incorporated on 3rd?November 2020 under the provisions of the Companies Act 2013 having its registered office at 71 - B-5, North Avenue, Maker Maxity, Bandra Kula Complex, Bandra East, Mumbai City in the state of Maharashtra. The company falls under the jurisdiction of the Registrar of Companies Maharashtra and the Registrar of Company is situated at Mumbai. The company currently have two directors on its board and also a company secretary. The company is involved in the activities of auxiliary to insurance and pension funding i.e, management of insurance and pension funding other than financial intermediation and includes activities of insurance agents, average and loss adjusters, actuaries and salvage administrators.
7. Facts about the case
The following are the relevant details on this case.
With the result of the above facts, there was delay of one hundred and nine days (109) from delay in issuing the share certificate (from 2nd?January 2021 to 20th?April 2021) to the subscribers of the Memorandum
8. Action taken by the company
Upon realizing the default/non-compliance committed by the company and its directors in issuing the share certificate after a delay of 109 days the company and its officer in default have suo-moto rnoved on application for adjudication of default for violation the provision counted in section 56 of Companies Act, 2013.
In the application for adjudication filed by the company and its officers in default admitted the default for violating the provisions contained in section 56 of the Companies Act, 2013, since the default under section 56 of the Companies Act 2013 is apparent on records,
9. Contents of the application filed by the company
In the application for adjudication filed by the company, the company had brought
the following in the application.
(a)?Prior to the issuance of the share certificates, the company was required to complete its capitalization process by bringing in the subscription monies from the foreign subscribers in its bank account.
(b)?Due to restrictions related to the Covid-19 pandemic impacting all services in India and globally including notarization and apostillation services on the foreign documentation, international courier services, there was an unavoidable delay in
(i)?Opening of the bank account of the initial foreign subscribers in their foreign home country i.e., The Netherlands,
(ii)?Submission of apostilled supporting documents including KYC details of the foreign subscribers to the bankers in India
(iii)?Additional and increased timelines taken by the Indian bank to review and process the application in accordance with their internal operations/compliance procedures etc. and later bringing in the foreign remittance for allotment of equity shares to its initial subscribers to the Memorandum
(iv)?Delayed timelines for making payment for stamp duty and arranging for stamping on the share certificates in Mumbai prior to their issuance thereby leading to an unintentional default of onward issuance of duly executed and stamped share certificates within sixty days from the date of incorporation despite constant efforts of the company in this regard.
10. Action taken by the regulator - personal hearing notice
In response to the application filed by the company for adjudication, the Registrar of Companies issued a personal hearing notice by fixing up a personal hearing on 23rd?September 2022 to the company and its directors in default by giving an opportunity to be heard in the matter.
11. On the day of personal hearing
On the day of personal hearing i.e. on 23rd?September 2022, one of the director who is also the authorized signatory along with the company secretary of the company (being the representative of the company) attended the personal hearing. During the personal hearing the company admitted the violation of section 56 of the Companies Act 2013, followed by a written statement from the company submitted on 29th?September 2022. In the written statement, the company had brought out the following points to the consideration of the Adjudication Officer.
(i)?The company submitted that the company secretary of the company who is also named as one of the officers in default should not be held liable for the said offence and penalized as he was appointed as a company secretary with effect from 24th?March 2021 - after the commission of the offence. The company secretary, on the date of default, was not at all associated with the company and subsequently the default was made good on 20th?April 2021.
(ii)?The company additionally pleaded that the non-executive director being a foreign national) of the company should not be held liable and penalized for the default made by the company since he is not involved in day to day function of the company.
(iii)?The company further stated in the written statement that the company and the managing director of the company who is officer in default under sub-section (60) of section?2?of the Companies Act 2013 should only be considered liable for the default committed.
12. Findings and observations by the Adjudicating Officer
The Registrar of Companies / Adjudicating Officer came to the conclusion after going through the application and also with reference to available records at the MCA portal and based on the submission made by the company at the time of personal hearing :-
Thus, the company and its directors/officers are in default in complying with sub-section (4) of section 56 of the Companies Act, 2013 and have rendered themselves liable to be penal action as provided in sub-section (6) of section 56 of the Companies Act, 2013. Accordingly the Registrar of Companies / Adjudicating Officer, proceeded with passing of the following adjudication order.
13. The order passed by the Registrar of Companies/Adjudicating Officer
In exercise of the powers conferred on the Registrar of Companies/Adjudication Officer, vide notification dated 24th March 2015 and having considered the facts and circumstances of the case besides oral and written submission made by the representative of the company and its directors at the time of hearing and after considering the factors mentioned in the relevant Rules, the Adjudicating Officer imposed the penalty on the company and its directors, as detailed below in the table.
(a)?The period of violation of provisions under section 56 of the Companies Act, 2013 is from 03rd?January 2021 to 20th?April 202, and delay is 109 days. As per signatory details available on MCA-21 portal, the above-mentioned individuals were Officers in default during the period of violation.
(b)?The order directed that the company and the directors shall have to make the payment of the penalty through "Ministry of Corporate Affairs" portal and proof of payment be produced for verification within 30 days of receipt of this order.
(c)?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 the appeal shall have to accompany by a certified copy of this order.
(d)?The order also drawn the attention to the section 454(8) (ii) 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 the 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 one lakh rupees, or with both. Regarding consequences of non-payment of 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 company does not pay the penalty imposed by the Adjudicating Officer or the Regional Director within a period of ninety days from the date of the 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.
(e)?The order ended up in stating that in case of default in payment of penalty, prosecution will be filed under section 454(8)(i) and (ii) of the Companies Act, 2013 at the own costs of the company and without any further notice.
14. 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 defaulting officers and also to the Regional Director, Western Region, Ministry of Corporate Affairs at Mumbai.
15. Complete order for reading
The readers may like to read the complete adjudication order passed by the Registrar of Companies - Mumbai on 21st?October 2022 in the matter of M/s IMC India securities Private Limited, Mumbai city, - the Adjudication order bearing no. No. ROC (M)/NJN/ADJ-ORDER/49361/2096-2099/RD-03 for penalty under Section 454 (3) of the Companies Act,2013 read with rule 3 of companies (Adjudication of Penalties) Rules 2014 in the matter of non-compliance of the Provisions of sub -section (4) of section 56 of the companies, 2013 and the relevant website is https://www.mca.gov.in/ content/ mca/ global/en/data-and-reports/ rd-roc-info /roc-adjudication-orders.html
16. Conclusion
The prima responsibility of the company secretary is to ensure, absolute compliance of the provisions of applicable Companies Act 2013, compliance with the provisions of the Companies Act 2013. In view of the stringent penal provisions of the Companies Act 2013, it is all the more necessary for the company secretary and in the absence of company secretary, the authorized person to ensure that the absolute compliance is done always on continuous basis as required by the provisions of the Companies Act 2013 which are applicable to a company. Non-compliance/delayed compliance attracts severe penalties in many of the sections of the Companies Act 2013 as seen in this case.
The company, though, done the delayed compliance, but for the period of delay, they have to pay rupees one and a half lacs coupled with time involved in sorting out the issue by making an application, attending the personal hearing, complying with the order etc., In view of the above, the company needs to work with a checklist for each of the activity and ensure absolute compliance in order to avoid penal actions.
Reference:-
1.?Companies Act 2013
2.?Companies (Amendment) Act 2020
3.?Companies (Accounts) Rules 2014
4.?Companies (Adjudication of Penalties) Rules 2014
5.?Companies (Adjudication of Penalties) Amendment Rules 2019
6.?Adjudication order passed by the Registrar of Companies, Mumbai on 21st?October 2022 in the matter of M/s IMC India securities Private Limited, Mumbai city, order bearing no. No. ROC (M)/MJN/AD]-ORDER/D361/2096-2099 /RD-03 for penalty under section 454 (3) of the Companies Act 2013 read with rule 3 of Companies (Adjudication of Penalties) Rules 2014 in the matter of non-compliance of the provisions of sub-section (4) of section 56 of the Companies Act 2013.
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Cylindrical turning at pars yeganeh
2 年Very good