[Opinion] RD Reduces Penalty as Delay in FDI Approval Leads to Delay in Filing Declaration for Commencement of Business | A Case Study

[2023] 155 taxmann.com 28 (Article)

1. Background of the case

This is a case in which the Registrar of Companies / Adjudication Officer of Karnataka, Bangalore passed under section 454 of the Companies Act 2013 vide his adjudication order No. ROC (B)/Adj.order.454-10A/VEAPL/Co.No.133292/2023/146 dated 11th April 2023 for default in compliance with the requirements of section 10A of the Companies Act 2013 read with the Companies (Adjudication of Penalties) Rules, 2014 in respect of M/ s. Vena Energy Aura Private Limited.

Against the order of the Registrar of Companies of Bangalore an appeal was filed by M/ s. Vena Energy Aura Private Limited challenging the penalty of three and a half lac rupees levied, before the Regional Director (South East Region) Ministry of Corporate Affairs, Hyderabad. Upon hearing the appeal, the Regional Director slashed the penalty amount from Rs.3,50,000/- to Rs.1,05,000 on the basis delay in receiving the foreign direct investment approval from the Ministry of New and Renewable Energy (MNRE) and we shall go through this case in details, in order to understand the rationale behind the reduction in penalty granted by the Regional Director.

2. Compliance requirement relating to declaration of commencement of business relevant to this case

A certificate of business commencement is required to be obtained within 180 days after the incorporation of the company and in this respect an e-form no 20A (declaration of commencement of business) is mandatorily required to be filed with the Registrar of Companies along with a certified copy of board resolution pursuant to section 10A (1) (a) of the Companies Act 2013 and Rule 23A of the Companies (Incorporation) Rules 2014. Further, a proof of deposit of the subscriber’s paid up share capital must be added to the e-form by way of an attachment.

If a company undertakes activities that need registration or permission from any sectoral regulator, such as the Reserve Bank of India or the Securities Exchange Board of India etc., the company must seek such registration or approval together with the attached declaration. It is important for the company and its officials to review and get the content validation done from a practicing professional (duly verified by a company secretary or a chartered accountant or a cost accountant in practice) before filing the e-form with the Registrar of Companies.

3. The Company

M/s.Vena Energy Aura Private Limited (subsidiary of a foreign company) incorporated on 12th March 2020 under the provisions of the Companies Act 2013 having its registered office at No. 2/1, First Floor, Embassy Icon Annexe, Infantry Road, Bangalore in the state of Karnataka. The company falls under the jurisdiction of Registrar of Companies of Karnataka and the office of the Registrar is situated at Bangalore. The company is having three directors on its board as per the details from the site of MCA. The company is dealing in renewable energy projects.

4. Default committed by the company

The company was incorporated on 12th March 2020 and hence the company was required to file the declaration of commencement of business in the e-form INC20A, within a period of 180 days. As per the general circular issued by the Ministry of Corporate Affairs vide circular no 11/2020 dated 24th March 2020, on the subject of special measures under Companies Act 2013 (CA-2013) and Limited Liability Partnership Act 2008 in view of COVID-19 outbreak, and additional period of 180 days was granted to a newly incorporated companies for filing the declaration of commencement of certificate of business with the Registrar of Companies as per the provisions of section 10A(1) of the Companies Act 2013.

Hence in this particular case, the company had a total of 360 days to comply with the provisions of section 10A (1) of the Companies Act 2013, for filing the required INC-20A form. Therefore the company was required to file the INC-20A form – declaration of commencement of business certificate on or before 6th March 2021. However, the company had filed the e-form 20A on 17th January 2023 i.e. with a delayed period of 316 days. In view of the delayed filing of the declaration of commencement of business, the company had committed default in complying with the statutory provisions by non-filing of the declaration of commencement of business (INC-20A) within the prescribed statutory period of 180 days of incorporation date and for such default the company and every officer who was in default were liable for penalty under section 10A of the Companies Act 2013.

Click Here To Read The Full Article