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Govt. appoints ‘Shri Samir Ashwin Vakil’ as director in Serious Fraud Investigation Office under MCA w.e.f 22.08.2024
The Central Government has appointed ‘Shri Samir Ashwin Vakil’ as Director in the Serious Fraud Investigation Office under the Ministry of Corporate Affairs w.e.f August 22, 2024 for a period of 5 years up to August 21, 2029 or until further orders, whichever is earlier.
FC's CIRP plea was admitted as cheques issued by CD for repayment were returned with endorsement 'stopped by drawer’
In the instant case, the applicant-financial creditors had cumulatively advanced a loan to corporate debtor as part of a bill discounting arrangement through an online bill discounting portal.
Later, the corporate debtor provided goods and services to an ‘enterprise’ and accordingly raised an invoice on said enterprise for invoice discounting. Based on representation from enterprise that said sale transactions and invoices were genuine, financial creditors offered to pay to corporate debtor on such discounted terms.
The corporate debtor received money due to it at a discounted price, whereas enterprise secured time for meeting its debts due to corporate debtor. However, when deadline for repayment of maturity amount arrived, enterprise failed to pay monies due to financial creditors.
Accordingly, as per agreement of Transfer of Rights and following recourse method on corporate debtor, corporate debtor was liable to refund consideration to financial creditors. Corporate debtor in order to effect restitution had provided cheques.
Consequently, the cheques when presented for collection, were returned by corporate debtor’s bankers with endorsement "stopped by drawer". The financial creditors submitted that though corporate debtor was served with a notice under section 138 of Negotiable Instruments Act, 1881, same was neither complied with nor did corporate debtor reply to same.
Subsequently, the financial creditors filed an application under section 7 against corporate debtor on ground that corporate debtor had massive liabilities and did not appear to have sufficient liquidity to meet its debts.
The NCLT held that since there was a debt and default on part of corporate debtor, application filed by financial creditor under section 7 was to be admitted.
Consequences of failure to meet requirement of minimum no. of independent directors on the Board
1. Background of this case
As per the provisions of section 149(4) of the Companies Act 2013, all listed public companies are required to maintain at least one-third of their board as independent directors and the Rule 4(1) of the Companies (Appointment of Directors) Rules 2014 mandates that public companies with substantial paid-up capital or turnover must have at least two independent directors. A company known as M/s. Dalas Biotech Limited, having its registered office at in Bhiwadi the state of Rajasthan, failed to adhere to these requirements by not filling up the vacancies created by the resignation of independent directors within the stipulated timeframe by the provisions of the Companies Act 2013. The non-compliance persisted over two distinct periods i.e. the first one was from 23rd February 2018, to 14th March 2021, and the second one was from 30th June 30 to 5th January 2023. However the company rectified the non-compliance, by appointing new independent directors well beyond the prescribed time by the Companies Act 2013 without adhering the required deadlines for filling up the vacancies. Consequently, the Adjudicating Officer, Jaipur of Rajasthan imposed a penalty of Rs. 8,00,000 on the company and its whole time director after following the adjudication proceedings. One would be interested in going through this case so that the compliance involved along with the procedure is understood along with the consequences and the rationale behind levying the penalty by the regulators.
2. Provisions relating to this case under the Companies Act 2013
The relevant provisions pertaining to this case is that of section 149 of the Companies Act 2013, read with the relevant rules framed thereunder and the extracts of the relevant provisions are as given below.
3. Consequences of default/violation
To understand the consequences of any default/non-compliance while complying with the provisions of section 149 of the Companies Act 2013 relating to appointment of independent directors on the board of the company – especially filling of the vacancies and the related procedure etc., within the frame of the Companies Act 2013 to be complied with, let us go through the decided case law by the Registrar of Companies of Jaipur of Rajasthan on this matter on 31st July 2024 relating to M/s. Dalas Biotech Limited.
4. The relevant case law on this matter
We shall go through the adjudication order passed by the Registrar of Companies, Jaipur on 31st July2024 -adjudication order bearing No. F. no. ROCJP/SCN/149/2024-25/1367 - order
for penalty under section 454 of the Companies Act 2013 read with Companies (Adjudication of Penalties) Rules 2014 and Companies (Adjudication of Penalties) amendment Rules 2015 for the violation of section 149(4) of Companies Act 2013 read with Rule 4(1) of Companies (Appointment of Directors) Rules 2014 in the matter of M/s Dalas Biotech Limited,
5. Details of the company
M/s. Dalas Biotech Limited, is a registered company under the provisions of the Companies Act, 1956 with effect from 18th July 1989 and having its registered office situated at E-292, RIICO Industrial Area, Bhiwadi, in the state of Madhya Pradesh. The company falls under the jurisdiction of Registrar of Companies, Rajasthan and the office of the Registrar of Companies is situated at Jaipur. The company, as per the details shown at the MCA portal has four directors out of them one of them is a whole time director. The company is a biotechnology and pharmaceutical healthcare company that manufactures active pharmaceutical ingredients and bulk drugs.
6. Facts of the case
As per the provisions of the Companies Act 2013. M/s. Dalas Biotech Limited should have had at least two number of Independent director(s) in its board pursuant to sub-section (4) of section 149 of the Companies Act 2013 read with Rule 4(1) of the Companies (Appointment of Directors) Rules 2014. The following were the incidents that has taken place in the company in with reference to the above compliance requirement.
(a)?The company had has appointed two of the individuals as independent directors in its board on 28th March 2015.
(b)?Subsequently one of the independent director had resigned from the directorship from the company with effect from 23rd November 2017.
(c)?The vacancy of the Independent director was required to be filled up by the company on or before 22nd February 2018 as per the timeline specified in the Companies Act 2013.
(d)?However the company had filed the vacancy by appointing another independent director on its board on 15th March 2021.
(e)?In this process, the company and its directors were in default since they had violated the provision of section 149(4) of the Companies Act 2013 read with Rule 4(1) of the Companies (Appointment of Directors) Rules 2014 for the period from 23rd February 2018 to 14th March 2021.
(f)?Further to the above, one more director who was appointed on 28th March 2015, had also resigned from the directorship with effect from 30th March 2021.
(g)?The vacancy arose due to the resignation of the second independent director was required to be filled up on or before 29th June 2021 as per the provisions of the Companies Act 2013.
(h)?In this case also, the company had appointed another independent director by filling up the vacancy only on 6th January 2023.
(i)?With the result the company and its directors were once again in default once again violating the provision section 149(4) of the Companies Act 2013 read with Rule 4(1) of the Companies (Appointment of Directors) Rule, 2014 for the period from 30th June 2021 to 5th January 2023.
7. Action taken by the Registrar of Companies - issue of show cause notice
In view of the facts discussed above, the Registrar of Companies/Adjudication Officer of Jaipur had issued a show cause notice on 21st May 2024 to the company and its directors directing them to furnish their replies in the matter within a period of 15 days from the date of receipt of notice.
8. Response from the company for the show cause notice
The company had furnished its reply vide letter dated 12th June 2024 stating that the company was rigorously searching appropriate skill in the market but the company was not able to find appropriate person as independent director for appointment on the board. The letter further stated that there was massive panic created in the market because of the COVID-19 pandemic situation due to which the process of appointment of independent director was delayed. The letter further read that the company had appointed one of the individual as an independent director on 15th March 2021 and the other appointment of independent director was done on 6th January 2023 and made default /offence good.
9. Further action taken by the Registrar of Companies - issue of show Adjudication notice
The reply furnished by the company was examined by the Registrar of Companies/Adjudication Officer and on this, it was observed that the company had violated the provision of section 149(4) of the Companies Act 2013 read with Rule 4(1) of the Companies (Appointment of Directors) Rules 2014 for the period from 23rd February 2018 to 14th March 2021 and also from 30th June 2021 to 5th January 2023. Therefore the Registrar of Companies/Adjudication Officer had issued an adjudication notice on 26th June 2024 to the company and its director and fixed a date of personal hearing in the matter as on 15th July 2024 and directed the company and its directors to appear for the personal hearing and make their submissions before proceeding on the adjudication in this matter.
10. On the date of personal hearing
On the scheduled date of hearing i.e. on 15th July 2024 none appeared for the personal hearing on behalf of the company and its directors. However, the Registrar of Companies/Adjudication Officer had received an e-mail dated 15th July 2024 from one of the company officials requesting the Registrar of Companies to adjourn the matter. However, the same was not considered by the Adjudication officer as the said e-mail was not received from the authorized officials of the company and as well as there was no board resolution was attached with the said e-mail with effect to extension of hearing.
11. Conclusions arrived by the Registrar of Companies/Adjudication Officer
The Registrar of Companies/Adjudication Officer, after having considered the facts and circumstances of the case and after considering the documents filed by the company in the Ministry of Corporate Affair's portal came to a conclusion that the company and its directors had not complied with the provisions of section 149(4) of the Companies Act 2013 read with Rule 4(1) of the Companies (Appointment of Directors) Rules, 2014 in respect of having minimum independent directors on its board as seen above. Therefore, the Registrar of Companies/Adjudication Officer concluded that the company and its directors were liable for penalty as prescribed under section 172 of the Companies Act 2013 for default made in complying with the requirements
12. Order passed by the Registrar of Companies/Adjudication Officer
The Registrar of Companies/Adjudication Officer in exercise of the powers vested upon him under section 454(3) of the Companies Act, 2013 and having arrived to a conclusion that the company and its directors had not complied with the provisions of section 149 (4) of the Companies Act 2013 read with Rule 4(1) of the Companies (Appointment of Directors) Rules, 2014, imposed penalty as provided under section 172 of the Companies Act 2013. The details of the penalty imposed on the company was shown in the table below:
a.?The Adjudication Officer was of the opinion that the penalty levied commensurate with the failure committed by the company and its directors and the defaulting directors were directed to remit the payment from their personal sources/income. The order further stated that the penalty imposed shall have to be paid through online by using the website www.mca.gov.in (Misc. head) in favour of "Pay & Accounts Officer, Ministry of Corporate Affairs, New Delhi, within 90 days of receipt of this order, and intimation was to be sent to the Registrar of Jaipur with proof of penalty paid
b.?The order stated that an appeal against this order may be filed in writing with the Regional Director (NWR), Ministry of Corporate Affairs, Ahmedabad within a period of sixty days from the date of receipt of this order, in e-Form ADJ (available on Ministry website mca.gov.in setting forth the grounds of appeal and the appeal shall have to be accompanied by a certified copy of this order (section 454(5) & 454(6) of the Companies Act 2013 read with Companies (Adjudicating of Penalties) Rules, 2014.
c.?The order also drew the attention to section 454(8)(i) and 454(8)(ii) of the Companies Act 2013 provisions which stated that in case of non-payment of penalty amount, 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 and officer in default 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 both.
d.?The order ended up in stating that the adjudication notice stood disposed off with this order.
12. Despatch of the order
The order was sent by the Registrar of Companies, Jaipur in terms of the provisions of sub-rule (9) of Rule 3 of Companies (Adjudication of Penalties) Rules 2014 to the company i.e. M/s. Dalas Biotech Limited and its whole time director and to the Regional Director, North Western Region, Ministry of Corporate Affairs Ahmedabad at ROC Bhavan, Opp. Rupal Park Society, Behind Ankur Bus Stop, Naranpura, Ahmedabad.
13. The complete order for reading
The readers may like to read the complete adjudication order passed by the Registrar of Companies/Adjudication Officer of Jaipur on 31st July 2024 - adjudication order bearing No. F. no. ROCJP/SCN/149/2024-25/1367 - order for penalty under section 454 of the Companies Act 2013 read with Companies (Adjudication of Penalties) Rules 2014 and Companies (Adjudication of Penalties) amendment Rules 2015 for the violation of section 149(4) of Companies Act 2013 read with Rule 4(1) of Companies (Appointment of Directors) Rules 2014 in the matter of M/s Dalas Biotech Limited, at the MCA website at https://www.mca.gov.in/content/mca/global/en/data-and-reports/rd-roc-info/roc-adjudication-orders.html . (the order is uploaded under ROC of Jaipur on 12th September 2024 titled as adjudication order for violation of section 149 (4) of the Companies Act 2013 in the matter of M/s. in the matter of M/s. Dalas Biotech Limited)
14. Conclusion
As per the framework of the Companies Act, listed companies are required to appoint at least 1/3rd of directors as independent directors and public companies need to have a minimum of 2 independent directors, depending on a few conditions.
The failure to comply with the mandated provisions of the Companies Act 2013, there is a serious risk of facing penalties and legal repercussions as seen in this case where the company, its whole time director were penalized to the tune of Rs. 8 lakh. We could conclude in saying that the compliance of the provisions of the Companies Act 2013 is utmost importance and is very critical and the company, its directors. Key managerial personal are required to ensure compliance meticulously to avoid the penalties from the regulator's end and also avoid the potential legal actions arising out of the non-compliance/default.
Needless to mention that the directors/officers/key managerial personnel should be aware of their responsibilities and obligations under the provisions relating to not only the Companies Act 2013 but also all other applicable laws to the company in which they are serving and ensure the required regulatory absolute compliance to the fullest extent. Not, but the least, making the prompt payment of any penalties levied by the regulatory authority is a must failing which further legal consequences due to non-payment of penalty being non-compliance with the order issued by the Adjudication authorities could also lead to additional actions pursuant to section 454(8) of the Companies Act 2013. Hence the companies and its directors/officers/key managerial personnel to ensure absolute compliance all the times and be a compliant company.
That's it from us for today!
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