[Opinion] Consequences of non-filing of CS vacancy timely under the Companies Act

[2022] 143 taxmann.com 340 (Article)

1. Appointment of company secretary

As per the amended Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 from the financial years commencing on or after 1st April, 2020 by the Ministry of Corporate Affairs (MCA) dated 03rd January, 2020, (a) every listed company, (b) every other public company having a paid-up share capital of Rs. 10 crore or more and (c) private company having a paid-up share capital of Rs. 10 crore or more are required to appoint a whole -time company secretary. ( It may be noted that, prior to the above amendment, every company which has a paid-up share capital of Rs. 5 crore or more was required to appoint whole -time company secretary (private and public both)

The company secretary is a key managerial person by virtue of section 2(51) of the Companies Act 2013. In the case of listed companies, the LODR regulation 2(o) states that key managerial personnel means KMP as defined by section 2(51) of the Companies Act 2013. The Companies Act and LODR regulation – both have same provisions relating to key managerial personnel which includes the company secretary.

2. Time limit for filling up the vacancy of KMP

As per section 203 (4) of the Companies Act 2013, if the office of any key managerial personnel (which includes the position of company secretary), the resulting vacancy is required to be filled up by the board at the meeting of the board within a period of six months from the date of such vacancy.

3. Relevant provisions of the Companies Act

The following are the relevant provisions under the Companies Act 2013 on this matter.

Section 203(1):- Every company belonging to such class or classes of companies as may be prescribed shall have the following whole time key managerial personnel:-

(i) Managing director or Chief Executive Officer or Manager and in their absence, a whole-time director;
(ii) Company secretary and
(iii) Chief Financial Officer.

Section 203(4):- If the office of any whole-time key personnel is vacated, the resulting vacancy shall be filled up by the board at the meeting of the board within a period of six months from the date of such vacancy.

4. Penal provisions for default/violation

As per the provisions of sub-section (5) of section 203 of the Companies Act 2013,
if any company makes any default in complying with the provisions of this section, such company shall be liable to a penalty of five lakh rupees and every director and key managerial personnel of the company who is in default shall be liable for a penalty of fifty thousand rupees and where the default is continuing one, with a further penalty of one thousand rupees per each day after the first during which such default continues but not exceeding five lakh rupees.

5. Consequences of default/violation – action from the Regulator

To understand the consequences of any default in complying with section 203 of the Companies Act 2013 relating to filing up the vacancy of the position of the company secretary within the prescribed time limit, let us go through one of the decided case law on this matter very recently – during the month of September 2022 – by the Registrar of Companies of Mumbai.

6. The relevant case law on this matter

We shall go through a case law relating to an adjudication order passed by the Registrar of Companies, Mumbai who was the Adjudicating officer in this case, bearing No.ROC-M/RS/ADJ/ order 322041/479 to 482 217 to 22 dated 23rd September 2022 in the matter of Adjudication of Penalty under section 454 of the Companies Act 2013, 2014 for violation of section 203 in the matter of M/s Elanco India Private Limited

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