[Opinion] Justice Served | RD Overturns Penalty on Independent Directors as They Were Not Liable for Company’s Failure to Appoint a CS

1. Background of the case

This is a case of an appeal made by the company against the adjudication order passed by the Registrar of Companies of Kolkata, West Bengal on 8th November 2023 under section 203 of the Companies Act 2013 vide order No. ROC/LEGAL/ADJ/21-031225/88/2022/8195 – 8205 adjudication order for penalty under section 454(3) of the Companies Act 2013 read with Rule 3 of the Companies (Adjudication of Penalties) Rules, 2014 as amended by the Companies (Adjudication of Penalties) Rules, 2019 in the matter of non-compliance of the provisions of section 203 (1) of the Companies Act 2013 read with Rule 8 of the Companies (Appointment and Remuneration of Managerial personnel) Rules 2014 in the matter of Delta International Ltd.

During the appeal, the Regional Director of Eastern Region reviewed the order under section 454 of the Companies Act, 2013. The Registrar of Companies had levied penalties totalling Rs. 25,00,000 on the company and its directors-in-default. During the appeal, the authorized representative appointed by the company had argued that two of the directors were independent directors and not liable for the penalty for the violation committed by the company and the same as accepted by the Regional Director. Consequently, the Regional Director modified the order issued by the Registrar of Companies by nullifying the penalties against these two independent directors. However, the penalties against the company and the remaining two directors were upheld. The revised total penalty was Rs.15,00,000 against the original penalty of Rs. 25,000. By this modified order the appeal was disposed of. Let us go through the case in details in order to understand the rationale behind granting relief to the independent directors on this matter.

2. The Company

M/s. Delta International Limited (a listed company) incorporated on 9th November 1977 under the provisions of the Companies Act 1956 having its registered office at 4 Council House Street, Kolkata in the state of West Bengal. The company falls under the jurisdiction of Registrar of Companies of West Bengal and the office of the Registrar is situated at Kolkata. The company as on date is having three directors on its board as per the details from the site of the Ministry of Corporate Affairs and one of them is a whole time director. The company is a manufacture and export of label, sticker and tags.

3. Default committed by the company

The Registrar of Companies while carrying out the scrutiny of M/s. Delta International Limited, a company registered in Kolkata had observed that the company had not filled up the vacancy of the company secretary as required by section 203(1) of the Companies Act 2013 during the period from 17th January 2015 till 9th September 2022, covering the Covid-19 pandemic exemption period granted from 20th March 2020 to 28th February 2022. The company was issued a show cause notice on this matter followed by reminders and the company was provided ample opportunities to respond the notices. However the company and its directors-in-default failed to provide an adequate reply for the show cause notices and also to justify non-imposition of penalties on this matter.

Finally the Registrar of Companies issued a personal hearing notice to the company and its directors-in-default and an authorized representative – a practicing chartered accountant appeared before the authorities on the day of personal hearing and informed the regulators that the company had appointed a company secretary on 10th September 2022. The authorized chartered accountant also further stated that the company was not having any operational income and still appointed the company secretary in order to comply with the requirements of the law. The Authorized representative prayed the regulator that the matter to take matter leniently while imposing the penalty. The Registrar of Companies came to a conclusion that the company and its directors, who had defaulted the provisions of section 203(1) of the Companies Act 2013 for non-appointment of whole-time company secretary were liable for penalties under section 203(1) of the Companies Act 2013 and accordingly he passed the following orders.

Click Here To Read The Full Article