Ensuring Compliance with Sexual Harassment Laws: A Case of Penalty for Non-Disclosure in Director's Report

The Ministry of Corporate Affairs (MCA), through its Registrar of Companies (ROC) Chennai, has recently adjudicated penalties against M/s Janaki Ram Steel and Power Private Limited. The penalties were imposed under Section 134 of the Companies Act, 2013, due to non-compliance observed in the company’s Board Reports for the financial years 2015-16 to 2019-20. Specifically, the company failed to disclose details of sexual harassment policies as mandated by Rule 8(5)(x) of the Companies (Accounts) Rules, 2014.

Company Background:

M/s Janaki Ram Steel and Power Private Limited, a registered entity under the Companies Act, 2013. The Company based in Chennai, Tamil Nadu, holds an active status with a paid-up capital of INR 18,74,96,870/- as of FY 2021-22, generating substantial revenue from operations.

Violation and Penal Provisions:

According to Section 134 of the Companies Act, 2013, every Board Report must include a statement on compliance with provisions related to the constitution of the Internal Complaints Committee under the Sexual Harassment of Women at Workplace (Prevention, Prohibition, and Redressal) Act, 2013. Rule 8(5)(x) of the Companies (Accounts) Rules, 2014, stipulates the same for companies with a paid-up share capital of INR 25 crore or more.

Inspection and Notice:

An inspection of the company’s books and accounts under Section 206(5) of the Companies Act, 2013, revealed the omission of this crucial disclosure in the Board Reports for the years 2015-16 to 2019-20. Consequently, an adjudication notice was issued to the company and its directors on 01.12.2023.

Company’s Response:

Pramod Singh, one of the directors, responded with an adjudication application, arguing that the company had complied with the disclosure requirements for the financial year 2019-20. However, the company’s paid-up capital of INR 18 crores disqualified it from being considered a small company, negating the application of lesser penalties.

Adjudication Hearing:

The hearing featured representations from the company’s counsel, asserting compliance for FY 2019-20 and requesting leniency for previous years. Despite these representations, the Adjudicating Officer upheld the non-compliance findings for FY 2018-19.

Decision and Penalty:

The Adjudicating Officer imposed the following penalties:

• Company: INR 3,00,000/-
• Directors: INR 50,000/- each

The total penalty amounted to INR 4,00,000/- for the violation of Section 134 of the Companies Act, 2013, for FY 2018-19.

Key Takeaways

This case underscores several critical points for companies to consider:

1. Strict Compliance: Companies must adhere to statutory requirements, particularly regarding workplace sexual harassment policies. Failure to do so can result in significant penalties.
2. Comprehensive Reporting: Board Reports must comprehensively cover all mandated disclosures. Omissions, even if unintentional, can lead to legal and financial repercussions.
3. Regular Audits: Conducting regular internal audits can help identify and rectify compliance gaps, ensuring that all regulatory requirements are consistently met.
4. Director Accountability: Directors must be aware of their responsibilities and ensure that all company practices align with legal standards to avoid personal liability.
5. Awareness and Training: Regular training and awareness programs about compliance requirements can help mitigate the risk of non-compliance and foster a culture of transparency and accountability within the organization.

By incorporating these practices, companies can avoid the pitfalls of non-compliance and create a safer, more transparent work environment.

Conclusion:

This case underscores the importance of strict compliance with statutory requirements, particularly those related to workplace sexual harassment. Companies must ensure that their Board Reports comprehensively cover all mandated disclosures to avoid such penalties and uphold a safe and compliant work environment.

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