ROC Slapped Rs. 36.60 Lakhs Penalty on Ex, Directors & Co., for Non-appointment of KMPs Within the Prescribed Time Limit
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- Last Updated on 17 December, 2023
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Prof R Balakrishnan – [2023] 157 taxmann.com 282 (Article)
1. Brief of this case
This case which is being examined is, in respect of a listed company known as Sylph Technologies Limited in which the appointment of the whole time director, chief financial officer and company secretary – all the three positions were not done during the year 2018 and 2019 though, the company was mandatorily required to appoint/fill up the vacant positions of these post of Key Managerial Personnel. The Registrar of Companies during the examination and enquiry of this company observed that these positions were vacant i.e. whole time director position was vacant for a period of 150 days and the chief financial officer and the company secretary positions were vacant for 210 days. The matter was taken up with the company by the Registrar of Companies and based on the response received from the company’s ex-directors, the Registrar of Companies penalized the company and its ex. directors for violation committed by them when they were holding the position of the directorship. In all an amount of 36.60 lakhs have been levied as penalty upon the company and its ex-directors.
This case is an eye opening case which exhibits the point that the director though resigned from the company, such resigning director is liable for penal actions even after his resignation for all the offences which occurred during his tenure of his directorship. This position has been clarified under section 168(2) of the Companies Act 2013, on the resignation of director clearly states that the resignation of a director shall take effect from the date on which the notice is received by the company or the date, if any, specified by the director in the notice, whichever is later with a provisions that the director who had resigned shall be liable even after his resignation for the offences which occurred during his tenure.
2. Relevant provisions under the Companies Act 2013
Section 203 of the Companies Act 2013 is the relevant provision on this matter in the chapter XIII – Appointment and Remuneration of Managerial Personnel under the heading appointment of key managerial personnel and the extracts of the section is as given below.
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Companies Act 2013
Chapter XIII – Appointment and Remuneration of Managerial Personnel
Section 203 – Appointment of key managerial
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Section
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Provisions
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203 (1)
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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, a Whole-time Director;
(ii) Company secretary; and
(iii) Chief Financial Officer
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Proviso
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Provided that an individual shall not be appointed or reappointed as the chairperson of the company, in pursuance of the articles of the company, as well as the managing director or Chief Executive Officer of the company at the same time after the date of commencement of this Act unless,—
(a) the articles of such a company provide otherwise; or
(b) the company does not carry multiple businesses.
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Proviso
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Provided further that nothing contained in the first proviso shall apply to such class of companies engaged in multiple businesses and which has appointed one or more Chief Executive Officers for each such business as may be notified by the Central Government.
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203 (2)
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Every whole-time key managerial personnel of a company shall be appointed by means of a resolution of the Board containing the terms and conditions of the appointment including the remuneration.
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203 (3)
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A whole-time key managerial personnel shall not hold office in more than one company except in its subsidiary company at the same time:
Provided that nothing contained in this sub-section shall disentitle a key managerial personnel from being a director of any company with the permission of the Board:
Provided further that whole-time key managerial personnel holding office in more than one company at the same time on the date of commencement of this Act, shall, within a period of six months from such commencement, choose one company, in which he wishes to continue to hold the office of key managerial personnel:
Provided also that a company may appoint or employ a person as its managing director, if he is the managing director or manager of one, and of not more than one, other company and such appointment or employment is made or approved by a resolution passed at a meeting of the Board with the consent of all the directors present at the meeting and of which meeting, and of the resolution to be moved thereat, specific notice has been given to all the directors then in India
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203 (4)
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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.
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203 (4) (A)
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The provisions of sub-sections (1), (2), (3) and (4) of this section shall not apply to a managing director or Chief Executive Officer or manager and in their absence, a whole time director of the Government Company.
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Penal provision for any default/violation
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203 (5)
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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.
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