[Opinion] RD Grants Relief Based on Financial Conditions & Sets Aside RoC’s Order on Non-appointment of CS

Prof R Balakrishnan – [2023] 151 taxmann.com 497 (Article)

1. Background of the case

This is one of the eye-opening case of appeal decided by the Regional Director of South Eastern Region, Hyderabad. This case is pertaining to an appeal filed under section 454(5) of the Companies Act 2013, against the adjudication order passed by the Registrar of Companies Andhra Pradesh, Vijayawada. The adjudication order was passed by the Registrar of Companies for default in compliance with the requirements of section 203 read with Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014. The default committed by the company was that the company failed to appoint a whole time company secretary in the company despite the paid up capital of the company had exceeded the prescribed limit as stated in the provisions of section 203(1) of the Companies Act 2013. The non-compliance of not appointing a company secretary resulted in a penal proceedings which was initiated against the company and its directors and the company and its directors were penalized for an amount of Rs 8.00 lakh. The Regional Director, upon hearing the submissions set aside the order by waiving of the penalty imposed by the Registrar of Companies.

The adjudication order passed by the Registrar of Companies was set aside, considering the facts that the company was in a bad financial condition, had been incurring losses for the last nine years, the debt of the company exceeded its paid of capital and above all the company had only nine shareholders. The Regional Director also observed that the Registrar of Companies had not considered the above facts which was narrated by the company and the same was evident from the order dated 7th September 2022 passed by the Registrar of Companies. This order clearly indicates that in case merit based extra-ordinary circumstances, the company could get a relief form the appellate authorities. Let us go through the case in details in order to understand the reasoning behind setting aside the order and waiving off the penalty.

2. Details of the company

M/s A S Jute Product Private Limited, is a registered company incorporated effective from 15th November 2010 under the provisions of the Companies Act 1956 and its registered office is situated at Plot No. H-1, AP Industrial Estate, V T Agraharam, Vizianagaram in in the state of Andhra Pradesh and the company falls under the jurisdiction of the Registrar of Companies of Andhra Pradesh and the Registrar of Company is situated at Vijayawada. The company currently have six directors (four directors plus two additional directors) on its board. The company’s activities are in jute related and allied activities.

3. Default committed by the company

The company had failed to appoint a whole time company secretary since the application of provisions of the Companies Act 2013 came into force to till the date of passing the adjudication order by the Registrar of Companies, Vijayawada, despite the paid up capital of the company had exceeded the prescribed limit as stated in the provisions of section 203(1) of the Companies Act 2013. Due to the above default, the Registrar of Companies of Vijayawada passed an adjudication order after following the due process of law and penalized the company and its six directors to the tune of rupees eight lakh rupees.

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