[Opinion] Period of non-compliance will attract penal actions by regulators – Case Study

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  • Last Updated on 1 October, 2022

Period of non-compliance

[2022] 142 taxmann.com 552 (Article)

1. A brief on the subject

Most of the people think, once the delayed compliance is done, everything is in order and there is no further action from the regulator. The reality is that the period of non-compliance, would still attract penal actions even though the company has done the late compliance. Late compliance is better the non-compliance but it does not mean, delayed compliance would absolve the penal action during the period of non-compliance.

The companies are expected to ensure the absolute compliance at the first instance within the time period prescribed by the regulators. By some reason or other, the timely compliance is not done, the companies could do the late compliance and as well go for suo-moto compounding application and ensure to get the adjudication order and remit the penalty levied by the regulator and set right the default committed. If this is not done, the regulators would initiate the action and pass the appropriate adjudication order and direct the company and the defaulting directors and officers to make the penalty.

2. Company secretary

As per section 203 of the Companies Act 2013, company secretary or secretary means a company secretary defined in clause (c) of sub-section (1) of section 2 of the Company Secretaries Act 1980 who is appointed by a company to perform the functions of a company secretary under the Act.

3. Purpose of appointment of company secretary

Company secretary of a company has a primary responsibility to ensure compliance with statutory and regulatory requirements and for ensuring the implementation of the decisions taken by the board of directors of the company. Further, a company secretary needs to be a member of the Institute of Company Secretaries of India and then and then only he / she is eligible to be appointed as a company secretary.

4. Companies requiring to appoint the company secretary

As per the provisions of section 203 of the Companies Act 2013, a company secretary is considered as one of the key managerial personnel. The following companies are mandatorily required to appoint a whole time company secretary.

    • Every listed company
    • Every other public limited company having a paid up share capital of ten crore rupees or more
    • Every private limited company which has a paid up share capital of ten crore rupees or more.

5. Laws governing the appointment of company secretary

The appointment and other related provisions for appointment of company secretary is governed by the provisions of Companies Act 2013 read with Companies ( Appointment and Remuneration of Managerial Personnel) Rules 2014 for all the companies and in addition to the above, for listed companies, additionally governed by SEBI (Listing Obligations and Disclosures) Requirements 2015.

6. Consequences of non-appointment of company secretary (i.e. default)

As per the provisions of sub-section (5) of section 203 of the Companies Act 2013, if any company makes any default, such company shall be liable to a penalty of rupees five lakhs and very director and key managerial personnel of the company who is in default shall be liable to a penalty of rupees fifty thousand and where the default is a continuing one, with a further penalty of rupees one thousand for each day after the first during which the default continues but not exceeding rupees five lakh.

In cases where the delayed appointment of whole time company secretary is made, than the prescribed time limit by law, the regulators can take action against the company and for the intervening period, when the default existed, the company and its directors could be penalised. To understand this aspect better, we shall go through one the decided case law on this matter.

7. The relevant case law on this matter

We shall go through a case relating an adjudication order passed by the Registrar of Companies, Gujarat, Dadra & Nagar Haveli on 1st February 2022 in the matter of M/s Spoton Logistics Private Limited vide adjudication order bearing No. ROC-GJ/Adj. Order/ Spoton/ sec. 203/2022 – 6991-93 for penalty under section 454 of the Companies Act, 2013 read with Companies (Adjudication of penalties) Rules, 2014 and companies (Adjudication of Penalties) amendment rules, 2019 for violation of section 203(1) (ii) of the Companies Act,2013 read with Rule 8 Companies (Appointment and Managerial Remuneration) Rules 2014.

8. Details of the company

M/s Spoton Logistics Private Limited, incorporated on 17th November 2011 having its registered office at Survey No 520/1 & 520 / 2, Opp. SEZ Naman Industrial Estate, ATPO Matoda Village, Matoda Taluka, Sanand, Ahmadabad, Gujarat. The company falls under the jurisdiction of Registrar of Companies is of Gujarat and the Registrar of Company is situated at Ahmedabad. The company is engaged in business of courier services nationally and as well internationally. The company is having four directors on its board and one of them is a Managing Director.

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