[Opinion] Company and Its Directors Slapped With Rs 7 Lakh Penalty for Disregarding Resident Director Requirement
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- Last Updated on 6 November, 2023
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Prof R Balakrishnan – [2023] 156 taxmann.com 105
1. Background of the case
The Registrar of Companies of Bangalore passed an adjudication order on 12th September 2023 penalizing the company and its four non-resident directors to a tune of Rs. 7 lakh since the company failed to appoint at least one director who has stayed in India for total period of not less than one hundred and eighty-two days in the previous calendar year. M/s Acia Communication Technology (India) Private Limited, a subsidiary company of a foreign company named Cisco Systems Inc., did not appoint a resident director right from the day of the company’s incorporation on 24th August 2016 and continued with the default till 22nd April 2021 – (the violation committed by the company extended to 1703 days). Finally, the company appointed two resident individuals on its board on 23rd April 2021. As per the provisions of section 149(3) of the Companies Act 2013, the company was mandated to appoint a resident director and having failed to appoint a resident director for a prolonged period, the company themselves filed a suo-moto application seeking adjudication from the Registrar of Companies for the violation committed by the company and its directors.
Though the company rectified the deficiency after a period of 1703 days, the regulators by following the due process of law by issuing a personal hearing notice, upon hearing from the company’s representative, passed an order penalizing the company and its directors for the violation committed for the period of default.
This case shows the importance of compliance and the consequences arising out of the non-compliance and serves as a reminder to all companies to ensure the companies meet their compliance obligations by adhering to the mandated legal requirements applicable to them. Needless to mention the companies must take the compliance obligations seriously and ensure absolute and timely compliance in order to avoid a substantial amount of financial penalties coupled with the time, the company executives had to spend on the issues in resolving.
2. Provisions relating to the cases discussed under the Companies Act 2013.
The relevant provisions under the Companies Act 2013, relevant to the cases are as given below:-
| Companies Act 2013 Chapter XI – Appointment and Qualifications of Directors Section 149 – Company to have board of directors |
|
| Section | Provision |
| 149 (3) | Every company shall have at least one director who has stayed in India for a total period of not less than one hundred and eighty-two days in the previous calendar year. |
| Penalty for default/non-compliance | |
| Companies Act 2013 Chapter XI – Appointment and Qualifications of Directors Section 172 – Punishment |
|
| 172 | If a company is in default in complying with any of the provisions of this Chapter (Chapter XI) and for which no specific penalty or punishment is provided therein, the company and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees, and in case of continuing failure, with a further penalty of five hundred rupees for each day during which such failure continues, subject to a maximum of three lakh rupees in case of a company and one lakh rupees in case of an officer who is in default. |
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