[Opinion] When Timing is Everything | The Fallout of Delayed Additional Director Regularization
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- Last Updated on 9 July, 2024
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Prof R Balakrishnan – [2024] 164 taxmann.com 96 (Article)
1. Background of this case
This is a case pertaining to the violation committed by M/s. Motia Sons Private Limited in delay in filing e-form DIR-12, which is required to be filed relating to the particulars of the appointment of directors and the key managerial personnel and the changes among them pursuant to sections 7(1)(c), 168 & 170(2) of the Companies Act 2013 read with Rule 17 of the Companies (Incorporation) Rules 2014 and 8, 15 & 18 of the Companies (Appointment and Qualification of Directors) Rules 2014. The delay relates back from the financial year 2012-2013 to 2022-2023. Despite being appointed as an additional director by the company and subsequently appointed as a director, the company failed to file the mandated e-form DIR-12 form for regularization in a timely manner. The company filed the required DIR-12 form after a delayed period of 2568 days instead of the mandatory requirements period of 30 days for filing the form. The Adjudication Officer of Chandigarh initiated the proceedings against the company and, following the due process of law, passed the adjudication order and penalized the company and director to the tune of rupees three lakh for the delay in filing Form DIR-12 for the regularisation of a director. Let us go through this case in order to understand the intricacies, the requirements of the law and the consequences of default on this matter.
2. Relevant Provision relating to this case under the Companies Act 2013.
The relevant provisions pertaining to this case are sections 149 and 173 of the Companies Act 2013, read with the relevant rules framed thereunder. The extracts of the relevant provisions are given below.
| Companies Act 2013 Chapter XI – Appointment and Qualification of Directors Section 161. Appointment of additional director, alternate director and nominee director . |
|
| Section | Provision |
| 161 (1) | The articles of a company may confer on its Board of Directors the power to appoint any person, other than a person who fails to get appointed as a director in a general meeting, as an additional director at any time who shall hold office up to the date of the next annual general meeting or the last date on which the annual general meeting should have been held, whichever is earlier. |
| 161 (2) | The Board of Directors of a company may, if so authorised by its articles or by a resolution passed by the company in a general meeting, appoint a person, not being a person holding any alternate directorship for any other director in the company, to act as an alternate director for a director during his absence for a period of not less than three months from India. |
| Proviso | Provided that no person shall be appointed as an alternate director for an independent director unless he is qualified to be appointed as an independent director under the provisions of this Act: |
| Proviso | Provided further that an alternate director shall not hold office for a period longer than that permissible to the director in whose place he has been appointed and shall vacate the office if and when the director in whose place he has been appointed returns to India: |
| Proviso | Provided also that if the term of office of the original director is determined before he so returns to India, any provision for the automatic re-appointment of retiring directors in default of another appointment shall apply to the original, and not to the alternate director. |
| 161 (3) | Subject to the articles of a company, the Board may appoint any person as a director nominated by any institution in pursuance of the provisions of any law for the time being in force or of any agreement or by the Central Government or the State Government by virtue of its shareholding in a Government company. |
| 161 (4) | In the case of a public company, if the office of any director appointed by the company in a general meeting is vacated before his term of office expires in the normal course, the resulting casual vacancy may, in default of and subject to any regulations in the articles of the company, be filled by the Board of Directors at a meeting of the Board:. |
| Proviso | Provided that any person so appointed shall hold office only up to the date up to which the director in whose place he is appointed would have held office if it had not been vacated |
| Penal section for non-compliance/default if any | |
| 172 | If a company is in default in complying with any of the provisions of this Chapter (chapter XI) and for which no specific punishment is provided therein, the company and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees and in case of continuing failure, with a further penalty of five hundred rupees for each day during which such failure continues, subject to a maximum of three lakh rupees in case of a company and one lakh rupees in case of an officer who is in default. |
3. Consequences of default/violation
To understand the consequences of any default/non-compliance while complying with the provisions of section 161 of the Companies Act 2013 relating to the appointment of additional director by the board and regularising the appointment to regular director at the ensuing annual general meeting and the related compliances, let us go through the decided case law by the Registrar of Companies of Chandigarh on this matter on 31st May 2024 relating to M/s. Motia Sons Private Limited.
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