[Opinion] Business Beyond Bounds | ROC Penalizes Company and Its Directors for Operating Outside MOA
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- Last Updated on 3 September, 2024
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Prof R Balakrishnan – [2024] 166 taxmann.com 23 (Article)
1. Brief about this case
The Registrar of Companies, Punjab and Chandigarh passed an adjudication order on 14th August 2024 against the company called M/s. Paramount Dye Tec Limited under the provisions of section 454 of the Companies Act 2013, addressing the violation committed by the company for not including the business of trading of fiber carried out by them in its Memorandum of Association of the company, which is one of the mandatory requirement specified under the provisions of section 4(1)(c) of the Companies Act 2013.
M/s. Paramount Dye Tec Limited was incorporated on 4th January 2024 and the company started trading in fiber with effect from 4th March 2024, without proper inclusion of the trading of fiber activity in the Memorandum of Association of the company. After some time, the company had realized that realized the violation committed by them, and thereafter, the company amended its MOA by conducting an extraordinary general meeting on 29th May 2024 and filed the necessary e-form MGT-14 on 31st May 2024 documenting the amendments effected in the Memorandum of Association of the company. Despite the corrective action taken by the company, the company acknowledged the non-compliance and voluntarily applied for adjudication proceedings under the provisions of section 454 of the Companies Act 2013. Considering various factors like the size of the company and the nature of the default, the Registrar imposed penalties on the company and two of its directors to the tune of Rs. 1.96 lacs. The penalties were determined under the provisions of section 450 of the Companies Act 2013 and the Companies (Adjudication of Penalties) Rules 2014, focusing on the nature of the default and the potential impact on public interest and investors. Let us go through this case in detail with reference to the provisions, compliance called for and the effect of non-compliance and its consequences.
2. Relevant provisions which are applicable in the present case of the Companies Act 2013
The relevant provisions pertaining to this case is that of section 4 of the Companies Act 2013, read with the relevant rules framed thereunder and the extracts of the relevant provisions are as given below.
| Companies Act 2013 Chapter 1I – Incorporation of company and matters incidental thereto Section 4 – Memorandum. |
|
| Section | Provision |
| 4 (1) | The memorandum of a company shall state— |
| 4 (1) (a) | (a) the name of the company with the last word? Limited in the case of a public limited company, or the last words? Private Limited in the case of a private limited company: |
| Provided that nothing in this clause shall apply to a company registered under section 8; | |
| 4 (1) (b) | the State in which the registered office of the company is to be situated; |
| 4 (1) (c) | the objects for which the company is proposed to be incorporated and any matter considered necessary in furtherance thereof; |
| 4 (1) (d) | the liability of members of the company, whether limited or unlimited, and also state,— |
| 4 (1) (d)(i) | the liability of members of the company, whether limited or unlimited, and also state,— |
| 4 (1) (d)(ii) | in the case of a company limited by guarantee, the amount up to which each member undertakes to contribute— |
| 4 (1) (d) (ii) (A) | to the assets of the company in the event of its being wound-up while he is a member or within one year after he ceases to be a member, for payment of the debts and liabilities of the company or of such debts and liabilities as may have been contracted before he ceases to be a member, as the case may be; and |
| 4 (1) (d) (ii) (B) | to the costs, charges and expenses of winding-up and for adjustment of the rights of the contributories among themselves; |
| 4 (1) (e) | in the case of a company having a share capital,— |
| 4 (1) (e) (i) | the amount of share capital with which the company is to be registered and the division thereof into shares of a fixed amount and the number of shares which the subscribers to the memorandum agree to subscribe which shall not be less than one share; and |
| 4 (1) (e)(ii) | the number of shares each subscriber to the memorandum intends to take, indicated opposite his name; |
| 4(1)(f) | in the case of One Person Company, the name of the person who, in the event of death of the subscriber, shall become the member of the company. |
| 4 (2) | The name stated in the memorandum shall not— |
| 4 (2)(a) | be identical with or resemble too nearly to the name of an existing company registered under this Act or any previous company law; or |
| 4 (2)(b) | be such that its use by the company— |
| 4 (2)(b)(i) | will constitute an offence under any law for the time being in force; or |
| 4 (2)(a)(ii) | is undesirable in the opinion of the Central Government. |
| 4 (3) | Without prejudice to the provisions of sub-section (2), a company shall not be registered with a name which contains— |
| 4 (3) (a) | any word or expression that is likely to give the impression that the company is in any way connected with, or having the patronage of, the Central Government, any State Government, or any local authority, corporation or body constituted by the Central Government or any State Government under any law for the time being in force; or |
| 4 (3) (b) | such word or expression, as may be prescribed, unless the previous approval of the Central Government has been obtained for using any such word or expression. |
| 4 (4) | A person may make an application, in such form and manner and accompanied by such fee, as may be prescribed, to the Registrar for the reservation of a name set out in the application as— |
| 4 (4) (a) | the name of the proposed company; or |
| 4 (4) (b) | the name to which the company proposes to change its name. |
| 4 (5)(i) | Upon receipt of an application under sub-section (4), the Registrar may, on the basis of information and documents furnished along with the application, reserve the name for a period of twenty days from the date of approval or such other period as may be prescribed. |
| Proviso | Provided that in case of an application for reservation of name or for change of its name by an existing company, the Registrar may reserve the name for a period of sixty days from the date of approval. |
| 4 (5)(ii) | Where after reservation of name under clause (i), it is found that name was applied by furnishing wrong or incorrect information, then,— |
| 4 (5) (ii) (a) | if the company has not been incorporated, the reserved name shall be cancelled, and the person making the application under sub-section (4) shall be liable to a penalty that may extend to one lakh rupees; |
| 4 (5)(ii) (b) | if the company has been incorporated, the Registrar may, after giving the company an opportunity of being heard— |
| 4 (5)(ii)(b)(i) | either direct the company to change its name within a period of three months, after passing an ordinary resolution; |
| 4 (5)(ii)(b)(ii) | take action for striking off the name of the company from the register of companies; or |
| 4 (5)(ii)(b)(iii) | make a petition for the winding up of the company. |
| 4 (6) | The memorandum of a company shall be in respective forms specified in Tables A, B, C, D and E in Schedule I as may apply to such company. |
| 4 (7) | Any provision in the memorandum or articles, in the case of a company limited by guarantee and not having a share capital, purporting to give any person a right to participate in the divisible profits of the company otherwise than as a member, shall be void. |
| Companies Act 2013 Chapter XXIX – Miscellaneous Section 450 – Punishment where no specific penalty or punishment is provided. |
|
| Penal section for non-compliance/default if any | |
| 450 | 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, or any condition, limitation or restriction subject to which any approval, sanction, consent, confirmation, recognition, direction or exemption in relation to any matter has been accorded, given or granted, and for which no penalty or punishment is provided elsewhere in this Act, the company and every officer of the company who is in default or such other person shall be punishable with fine which may extend to ten thousand rupees, and where the contravention is continuing one, with a further fine which may extend to one thousand rupees for every day after the first during which the contravention continues.. |
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