[Opinion] ROC Penalizes Co. & Board Members for Delayed Appointment of KMP and Spares CS & CFO for Not Being Part of Board
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- Last Updated on 18 April, 2024
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Prof R Balakrishnan – [2024] 161 taxmann.com 465 (Article)
1. Background of the case
The Registrar of Companies/Adjudication Office of Delhi passed an adjudication order on 19th March 2024, in respect of M/s. Mawana Foods Private Limited for violation of section 203 of the Companies Act 2013. In this case, the Registrar of Companies/Adjudication Officer held a view that KMPs who are not part of the board i.e. company secretary and chief financial officer both cannot be held liable for violation committed by the company for the delay in appointing the key managerial position of managing director or chief executive officer or manager.
In the speaking order issued by the Registrar of Companies/Adjudication Office of Delhi, he stated that the scope of KMP was wider, as it covers officers other than the directors of the company. But section 203(4) clearly casted the obligation for appointment of a KMP in timely manner on the board of directors only. Therefore, the Registrar of Companies/Adjudication Officer, held that a KMP who was not part of the board was not under an obligation under section 203(4) as no onus was casted upon him to ensure the appointment was made as per the said provision. Based on the above the Registrar of Companies/Adjudication Officer concluded in his adjudication order that as per the harmonious interpretation of the section 203 (4) and section 203(5), the entire board of directors of the company were liable for the period in which the default occurred. Other KMPs of the company who were not part of the board were not liable.
In this particular case pertaining to M/s. Mawana Foods Private Limited, the Adjudication Officer penalized the company and its four present directors plus one of the past director a penalty to a tune of Rs. 19.13 lakh and held that the company secretary and chief financial officer who were KMPs but not part of the Board were not liable for penalty. This being an very interesting case, let us go through the same in threadbare with reference to the applicable provisions along with the interpretation, procedure involved and the manner in which the Registrar of Companies dealt with this case and penalized the company and its directors alone leaving the company secretary and chief financial officer from the levy of penalty.
2. Relevant provisions of the Companies Act 2013 relating to this case
The following are the relevant provisions of the Companies Act 2013 and the relevant extracts are as stated below.
| Companies Act 2013 Chapter XIII – Appointment and Remuneration of Managerial Personnel Section 203 – Appointment of Key Managerial Personnel |
|
| Section | Provision |
| 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, (ii) Whole-Time Director. (iii) Company Secretary and (iv) Chief Financial Officer |
|
| 203 (4) | If the office of any whole-time key managerial personnel is vacated, the resulting vacancy shall be filled up by the Board at a meeting of the Board within a period of six months from the date of such vacancy. |
| 203 (5) | There shall be a minimum period of one year between the grant of options and vesting of option. |
| Penal provisions in case of default/non-compliance | |
| 203(5) | 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 to a penalty of fifty thousand rupees and where the default is a continuing one, with a further penalty of one thousand rupees for each day after the first during which such default continues but not exceeding five lakh rupees. |
3. Consequences of any default
To understand the consequences of any default while in complying with the section of 203 of the Companies Act 2013 relating the appointment of key managerial personnel and the related procedure thereto, let us go through the decided case law by the Registrar of Companies, Delhi on 19th March 2024 – in the matter of M/s. Mawana Foods Private Limited.
4. The relevant case law on this matter
We shall go through the adjudication order by the Registrar of Companies, Delhi on 19th March 2024 – in the matter of M/s. Mawana Foods Private Limited – adjudication order bearing no. ROC/D/Adj/Order/203/Mawana/1510 – 1518 – order for penalty pursuant to section 203 of the Companies Act 2013
5. Details of the company
M/s. Mawana Foods Private Limited is a registered company effective from 3rd January 2006 under the provisions of the Companies Act 1956 having its registered office at 5th Floor Kirti Mahal 19, Rajendra Place, Central Delhi, New Delhi in the union territory of Delhi. The company comes under the jurisdiction of the Registrar of Companies of NCT of Delhi and Haryana and the Registrar of Company’s office is situated at Delhi. The company currently have four directors on its board and also have a Manager. The company also have a chief financial officer and a company secretary in whole time employment. The company is involved in the business of marketing and distribution of FMCG food products.
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