[Opinion] RD Overturns ROC’s Penalty on Kudos Finance for Incorrect Application of AOC-4 NBFC Filing Criteria | Penalty Waived

This is a classic case of an appeal where the Regional Director was required to determine as to whether the company was required to file the AOC-4 NBFC or otherwise while complying with the requirement of annual financial statements after the annual general meeting of the company. M/s. Kudos Finance and Investments Private Limited which was having a net worth of Rs. 12,67,07,816 (Rupees Twelve Crores sixty seven lakh seven thousand and eight hundred and sixteen only) did not file the AOC-4 NBFC for the financial year 2020-21.

The Registrar of Companies, Pune, initiated the adjudication proceedings against this company for the failure to file the AOC-4 NBFC on the premise that the company’s turnover exceeded the threshold limit and, therefore, the company was required to file the AOC-4 NBFC and levied penalty upon the company and its directors to a tune of Rs. 3.15 lakh. The company filed an appeal against this order stating that the turnover criteria is never mentioned by the Ministry of Corporate Affairs circular, and as per the circular issued by the Ministry, all the unlisted NBFCs and their subsidiaries, holding, associate companies or joint ventures having a net worth of less than Rs.500 crore but more than Rs.250 crore. Obliviously, while determining the criteria for filing the AOC-NBFC, the net worth of the company was required to be considered, not the turnover.

At the appeal, the company brought out the details of the Ministry of Corporate Affairs circular and stated that the company was not required to file the AOC-4 NBFC since the company was not fulfilling the criteria mentioned in the circular. The Adjudication Officer of Pune, who passed the order, admitted through his report that the grounds taken by the company were tenable and the relief sought for waiver of the penalty could be considered as no turnover criteria mentioned in the above press release. The Adjudication Officer, in his report, also admitted that the filing AOC-4 NBFC was not applicable to this company, and the adjudication order was passed on the basis of considering the turnover of the company instead of considering the net worth of the company. In the appeal, the order passed by the Registrar of Companies of Pune was set aside, waiving the penalty imposed in the appeal decided by the Regional Director of Western Region, Mumbai. Let us go through the case in details in order to understand the intricacies involved on this matter and the rationale behind the setting aside the order.

M/s. Kudos Finance and Investments Private Limited was incorporated on 25^th April 2009 under the provisions of section 3 (1)(iii) of the Companies Act 1956 having its registered office at C/o, EFC Limited, 7^th Floor, East Wing, Marisoft-3, Marigold Premises, Kalyani Nagar, Pune in the state of Maharashtra. The company falls under the jurisdiction of Registrar of Companies of Maharashtra and the office of the Registrar is situated at Pune. The company, as per the details shown at the MCA portal is having five directors on its board. The company is a Non-Banking Financial Company (NBFC) with a goal to help finance small-scale urban businesses through the medium of unsecured loans, including loan services to include MSME, business loans, machinery loans and short-term loans.

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