A brief about this case
1. As per the framework of the Companies Act, every company is required to prepare its board report and get the same adopted and approved by the shareholders at the annual general meeting along with the financials of the company. Section 134 of the Companies Act 2013 spells out the disclosures which are required to be made in the board report and one such disclosure is the number of board meeting held in the financial year. The Secretarial Standard -4 on report of the board of directors issued by the Institute of Company Secretaries of India (though not mandatory but voluntary) also spells out in its clause 6.4 under the heading ‘Board Meetings” that the number and dates of meetings of the board held during the year shall have to be disclosed in the board report of the company.
M/s East Alpha Alliance Technology Private Limited, a Noda based company failed to disclose the board meeting held during the financial year 2018-19 in its board report and this being a non-adherence of the requirements of the Companies Act 2013 provisions, the Adjudication Officer of NCT, Delhi & Haryana had initiated the penal action against the company by following the legal procedure and penalized the company and its directors to a tune of Rs. 2.50 lakh (being a small company). Let us go through this case in detail in order to understand the requirements that are called for by the Secretarial Standards and the consequences of non-adherence.
Provisions relating to this case under the Companies Act 2013.
2. The relevant provision pertaining to this case is section 134 of the Companies Act 2013, read with relevant rules, and the extracts of the relevant provisions are given below.
| Companies Act 2013 Chapter IX – Accounts of Companies Section 134 – Financial statement, Board’s report, etc. | |
| Section | Provision |
| 134 (1) | The financial statement, including consolidated financial statement, if any, shall be approved by the Board of Directors before they are signed on behalf of the Board by the chairperson of the company where he is authorised by the Board or by two directors out of which one shall be managing director, if any, and the Chief Executive Officer, the Chief Financial Officer and the company secretary of the company, wherever they are appointed, or in the case of One Person Company, only by one director, for submission to the auditor for his report thereon. |
| 134 (3) | There shall be attached to statements laid before a company in general meeting, a report by its Board of Directors, which shall include– |
| 134 (3) (b) | number of meetings of the board. |
| Penal section for non-compliance / default if any | |
| 134(8) | If a company is in default in complying with the provisions of this section, the company shall be liable to a penalty of 3 lakh rupees, and every officer of the company who is in default shall be liable to a penalty of 50,000 rupees |
Consequences of default/violation
3. To understand the consequences of any default / non-compliance while complying with the
provisions of section 134 of the Companies Act 2013 relating to disclosures to be made in the board report – especially with reference to board meeting details, directors appointment etc. let us go through the decided case law by the Registrar of Companies of Kanpur on this matter on 8th May 2024 relating to M/s East Alpha Alliance Technology Private Limited
The relevant case law
4. We shall go through the order of adjudication order passed by the Registrar of Companies, Kanpur of Uttar Pradesh – order bearing no 07/0 /Adj-134(3)(b)/East Alpha/897-901 dated 8th May 2024 – order for violation of section 134 (Accounts of companies) of the Companies Act 2013 read with section 454 of the Companies Act 2013 read with Companies (Adjudication of Penalties) Rules 2014 and Companies Amendment Act 2020 in the matter of M/s East Alpha Alliance Technology Private Limited
Company details
5. M/s East Alpha Alliance Technology Private Limited is a registered public company with effect from 18th May 2017 under the provisions of the Companies Act 2013 having its registered office at F-304, Ground Floor Sector-63, Noida in the state of Uttar Pradesh and the company falls under the jurisdiction of the Registrar of Companies of Uttar Pradesh and the Registrar of Company is situated at Kanpur. The company as per the details available at the Ministry of Corporate Affairs portal, currently have three directors. The company is manufacturer of machinery and equipment.
Facts of the case
6. The following are the facts relating to this particular case.
| (a) | The Registrar of Companies of NCR Delhi & Haryana was ordered to conduct an enquiry by the Directorate of Ministry of Corporate Affairs under section 206(4) of the Companies Act 2013 in the matter of M/s East Alpha Alliance Technology Private Limited. The same was later transferred to the jurisdiction of Registrar of Companies, Kanpur of Uttar Pradesh, on 5th August 2022 as instructed by the Directorate of Ministry of Corporate Affairs subsequently. | |
| (b) | During the course of enquiry and inspection, the enquiry officer observed that the company had appointed one of the foreign nationals as a director of the company at the board meeting held by the company on 9th March 2019. | |
| (c) | The company had also filed the e-form DIR-12 for the above appointment on 11th March 2019 with the Registrar of Companies through the online portal of the Ministry of Corporate Affairs. | |
| (d) | The enquiry officer further observed that the company did not disclose the board meeting held on 9th March 2023 in its board report of the company for the financial year 2018-19 (year ended as on 31st March 2019) which was one of the mandatory requirement under the provisions of section 134 (3)(b) of the Companies Act 2013. | |
| (e) | With the above observation, the enquiry officer formed an opinion that the company and its directors violated the provisions of section 134(3) (b) by not disclosing the board meeting details in the board report of the company in their board report for the year 2018-19. |
Accordingly, the enquiry officer submitted his enquiry report on 11th November 2022 to the Regional Director of Northern Region stating the facts of the matter and requesting the directions on this matter. The enquiry report also pointed out that the company and its officers who were default were liable for penal action as per the provisions of section 2 (60) of the Companies Act 2013.
Directions from the Regional Director
7. The Regional Director of Northern Region vide his letter dated 4th May 2023, accorded his consent to initiate the legal penal actions against the company and its directors for the violation committed by them under the provisions of the Companies Act 2013.
Action taken by the Registrar of Companies – issue of show cause notice
8. Accordingly, the Registrar of Companies / Adjudication Officer, as instructed by the Regional Director of Northern Region had issued show cause notice dated 15th March 2024 for adjudication on this matter under the provisions of section 134 of the Companies Act 2013, .
Response of company and directors for the show cause notice
9. The company and its directors failed to respond any reply to the show cause notice issued to the company and its directors and no one appeared before the Registrar of Companies on this matter and also the Registrar of Companies did not receive the show cause notice back to its office as undelivered by the postal authorities.
No Personal hearing fixed on this matter
10. The Registrar of Companies / Adjudication Officer decided not to have a personal hearing on this matter since, neither the defaulting directors not any representative of the director had either furnished their reply not had appeared before him.
Conclusion reached by the Registrar of Companies / Adjudication Officer
11. The Registrar of Companies / Adjudication Officer, after having considered the facts and circumstances of the case, came to a conclusion that the company and its directors failed to comply with the provisions of section 134 (3) (b) of the Companies Act 2013, by not disclosing the board meeting details in their board report and therefore they were liable for penalty as prescribed under the provisions of section 134(8) of the Companies Act 2013.
His conclusion has further strengthened the apprehension due to the fact that none of the directors had either furnished their reply or appeared before him on this matter, and the failure of non-compliance with section 134 (3) (b) of the Act was established by the enquiry report along with the documents submitted by the company on the Ministry of Corporate Affairs portal.
As regards imposing a lesser penalty
12. As per the provisions of section 446B of the Companies Act 2013, if a penalty is payable
for non-compliance with any of the provisions of this Act by a One Person Company, small company, star-up company or Producer Company or by any of its officers in default, or any other person in respect of such company, then such company, its officer in default or any other person, as the case may be shall be liable to a penalty which shall not be more than one-half of the penalty specified in such provisions subject to a maximum of two lakh rupees in case of a company and in case of an officer who is in default or any other person as the case may be.
The Registrar of Companies / Adjudication Officer observed that this particular company fulfils the requirement of a small company as per sub-section (85) of section 2 of the Companies Act 2013 and, therefore, was entitled to levy a lesser penalty under the provisions of section 446B of the Companies Act 2013. Accordingly, the adjudication order was passed by the Adjudicating Officer.
Order passed by the Registrar of Companies / Adjudication Officer
13. The Registrar of Companies / Adjudication Officer, in the exercise of the powers vested upon him under section 454(1) & (3) of the Companies Act 2013 and considering the facts and circumstances of the case and also after taking into consideration of the factors discussed above imposed penalty on the company and its directors as prescribed under section 134 (8) of the Companies Act 2013 for the violation committed by them under the provisions of section 134 (3) (b) of the Companies Act 2013 for the financial year 2018-19 as per details shown below in the table.
| Violation committed under the Companies Act 2013 | Penalty imposed upon Company / Directors | Maximum limit for penalty | Total Penalty imposed |
| Rupees | Rupees | ||
| Section 134 (3) (b) of the Companies Act 2013 non-disclosure of board meeting held in the board report | |||
| Company | 3,00,000 | 1,50,000 | |
| Director -1 | 50,000 | 25,000 | |
| Director -2 | 50,000 | 25,000 | |
| Director -3 | 50,000 | 25,000 | |
| Director -4 | 50,000 | 25,000 | |
| Penalty imposed | 2,50,000 | ||
| (a) | The Adjudication Officer was of the opinion that the penalty was commensurate with the aforesaid failure committed by the company and its directors. | |
| (b) | The order directed the company and its directors as mentioned in the table above to make the payment of the penalty amount within 90 days of receipt of this order through the Ministry of Corporate Affairs portal only as mentioned under Rule 3 (14) of Companies (Adjudication of Penalties) Amendment Rules 2019 under intimation to the Registrar of Companies of Kanpur. | |
| (c) | The order also further stated that an appeal against this order may be filed with the Regional Director (Northern Region), Ministry of Corporate Affairs, B-2 Wing, 2nd Floor, Paryavaran Bhawan, CGO Complex, Lodhi Road, New Delhi within a period of sixty daysfrom the date of receipt of this order, in Form ADJ (available on Ministry website http://www.mca.gov.in) setting forth the grounds of appeal and the appeal shall have to be accompanied by a certified copy of the order. [Section 454(5) & 454(6) of the Act read with Companies (Adjudicating of Penalties) Rules, 2014]. | |
| (d) | The order drew the attention to the company and its directors to section 454(8) of the Companies Act 2013 in the event of non-compliance of this order and further stated that in case an appeal was made, the order directed the company to inform the appeal details to the Registrar of Companies of Uttar Pradesh along with the penalty imposed and the payments made. |
Despatch of the order
14. The order was sent by the Registrar of Companies in terms of the provisions of Sub-rule (9) of Rule 3 of Companies (Adjudication of Penalties) Rules 2014 as amended by Companies (Adjudication of Penalties) Amendments Rules 2019 to the company and its defaulting directors present and past and also to the Regional Director, (Northern Region) Ministry of Corporate Affairs, CGO Complex, Lodhi Road, New Delhi.
The complete order for reading
15. The readers may like to read thecomplete order passed by the Registrar of Companies, Kanpur of Uttar Pradesh – order bearing no 07/ 01 / Adj-134(3)(b)/East Alpha/897-901 dated 8th May 2024 – order for violation of section 134 (Accounts of companies) of the Companies Act 2013 read with section 454 of the Companies Act 2013 read with Companies (Adjudication of Penalties) Rules 2014 and Companies Amendment Act 2020 in the matter of M/s East Alpha Alliance Technology Private Limited and the relevant website https:// www. mca. gov.in/ content/mca/global/en/data-and-reports/rd-roc-info/roc-adjudication-orders.html (order was uploaded under ROC of Kanpur on 282nd July 2024 titled as an order for violation of section 134 of the Companies Act 2013 in the matter of M/s East Alpha Alliance Technology Private Limited)
Conclusion
16. Section 134 of the Companies Act 2013, read with secretarial standard – 4 brought out by the Institute of Company Secretaries of India on the report of the board of directors spells out the details which are required to be included in the board report. In the given case, as discussed, the company failed to disclose the board meetings held in the financial year, which is a violation of the requirement section 134 (3) (b) of the Companies Act 2013. The Adjudication Officer had initiated penal action against the company and its directors, and finally, the company and directors were penalized to the tune of Rs. 2.50 lakhs (being a small company). We can conclude that the company and its directors need to take all the necessary precautions, probably by having a thorough checklist and need to take all care in ensuring absolute compliance while preparing the board report with reference to the various disclosure requirements failing which the company would be facing the penal action from the regulators and end up in legal litigation coupled with financial penalty as seen in this case. Let the directors and other officers of the company put up a compliance mechanism system by having a checklist for all applicable laws and ensure absolute compliance at all times by doing things right for the first time.
References:-
| 1. | The Companies Act 2013 | |
| 2. | Secretarial Standard -4 on report of board of directors | |
| 3. | Companies (Adjudication of Penalties) Rules 2014 | |
| 4. | Companies (Adjudication of Penalties) Amendments Rules 2019 | |
| 5. | Adjudication order passed by the Registrar of Companies, Kanpur of Uttar Pradesh – order bearing no 07/ 01 / Adj-134(3)(b)/East Alpha/897-901 dated 8th May 2024 – order for violation of section 134 (Accounts of companies) of the Companies Act 2013 read with section 454 of the Companies Act 2013 read with Companies (Adjudication of Penalties) Rules 2014 and Companies Amendment Act 2020 in the matter of M/s East Alpha Alliance Technology Private Limited |
Prof R Balakrishnan
FCS – FCMA
