[Opinion] Incorrect Company Name could attract penalty under Companies Act 2013 – Case Study

[2022] 141 taxmann.com 554 (Article)

1. Board Report

As per the provisions of the Companies Act, 2013, the directors of every company is required to attach its report to the financial statements to be laid before the members at the annual general meeting. The board’s report is an important means of communication by the board of directors of a company with its stakeholders. The board’s report provides the stakeholders with both financial and non-financial information, including the performance and prospects of the company, relevant changes in the management and capital structure, recommendations as to the distribution of profits, future and on-going programmes of expansion, modernisation and diversification, capitalisation of reserves, further issue of capital and other relevant information.

Besides the above, the Companies Act, 2013, also mandates certain disclosures to be made in the board’s report. A listed company is also required to comply with certain additional requirements as stated under the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015. Similarly, a company, whose securities are listed on an overseas stock exchange, is required to comply with additional requirements as may be specified by such stock exchange. Further, a company which is regulated under other laws, may also be required to make additional disclosures in its board’s report as stated in the respective applicable laws. The board’s report should be based on the company’s standalone financial statement and not on the consolidated financial statement and should relate to the financial year for which such financial statement is prepared.

2. Name/address of the company in board report

As per the provisions of the Companies Act 2013, every company needs to have its registered office details on all its documents such as letterheads, notices and other publications. Obviously, board report being a report by the board of directors addressed to the shareholders of the company should also contain the correct name/ registered office details of the company.

3. The relevant provisions of the Companies Act 2013 on this matter

As per the provisions of section 13 of the Companies Act 2013, the following are the provisions on this subject:-

(1) Save as provided in section 61, a company may by a special resolution and after complying with the procedure specified in this section, alter the provisions of its memorandum.
(2) Any change in the name of a company shall be subject to the provisions of sub-section (2) and (3) of section 4 and shall not have effect except with the approval of the Central Government in writing.

4. Consequences of default/noncompliance

Section 13 of the Companies Act 2013 does not provide any specific penalty for violation and therefore,the Company and its officers in default have rendered themselves liable to be panel action as provided under section 450 of the Companies Act, 2013.

As per the provisions of section 450 of the Companies Act, 2013, if a company or any officer of a company or any other person contravenes any of the provisions of the Companies Act 2013 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 liable to a penalty of ten thousand rupees, and in case of continuing contravention, with a further penalty of one thousand rupees for each day after the first during which the contravention continues, subject to a maximum of two lakh rupees in case of a company and fifty thousand rupees in case of an officer who is in default or any other person.

Although, at times, people do committee mistakes by not mentioning the correct name etc., it may appears to be minor in nature, but as per the provisions of the law, it is a default/non-compliable leading to penal action by regulators.

In this respect, we can go through one of the decided case law, to understand the regulatory action for not mentioning the correct name of the company in the board report.

5. The relevant case law

On 8th July 2022 21st July 2022, the Adjudication order of penalty under section 454 of the Companies Act 2013 read with Companies (Adjudication of Penalties) Amendment Rules 2019 was passed by Adjudicating officer & Registrar of Companies of Gujarat, Dadra & Nagar Haveli, Ahmedabad for violation of section 13 of the Companies Act 2013 in the matter of M/s Bock Compressors India Private Limited and we shall go through the details of this case.

6. Details of the company

M/s. Bock Compressors India Private Limited is a company incorporated on 03rd December 1996 having its registered office at Block No. 08, P.O. Dumad, Savli Road, and Vadodara – Gujarat. Later the company shifted its registered office to Keval Corporate Park, Block No.2 Channi-Nizampura Road, Channi, Vadodara, Gujarat. The company falls under the jurisdiction of Registrar of Companies, Ahmedabad and the Registrar of Company is situated at Ahmedabad. The company’s operations are in the area of providing construction services and it offers plans and constructs refrigeration plants for brewing and malting industry. The company is having three directors on its board being an unlisted public limited company.

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