A Costly Misstep: MCA Imposes Penalty because company accepted deposit before filing commencement of business declaration

Question: What was the issue in the case of Ultrafine Mineral & Admixtures Private Limited?

Answer: Ultrafine Mineral & Admixtures Private Limited, a company registered under the Companies Act, 2013, received an Inter Corporate Deposit before filing the required declaration for commencement of business(INC-20A). This action was in violation of Section 10A of the Act.

Question: What does Section 10A of the Companies Act, 2013 stipulate

Answer: Section 10A of the Companies Act, 2013, states that a company incorporated after the commencement of the Companies (Amendment) Ordinance, 2019, and having a share capital, shall not commence any business or exercise any borrowing powers unless a declaration is filed by a director within a period of 180 days of the date of incorporation of the company.

Question: What was the timeline of events in this case?

Answer: The company was incorporated on March 4, 2020, and was required to file INC-20A on or before August 31, 2020. The company did file INC-20A on August 24, 2020, within the stipulated 180 days. However, it received an Inter Corporate Deposit on August 14, 2020, 10 days prior to filing INC-20A, which constituted a violation of Section 10A(a) for a period of 10 days.

Question: What was the outcome of this case?

Answer: The MCA, after reviewing the application for compounding and considering the violation, initiated the adjudication process under Section 454 of the Companies Act, 2013. The Adjudicating Officer imposed a penalty on Ultrafine Mineral & Admixtures Private Limited and its officers in default for the violation of Section 10A(a) and (b).

Question: What were the penalties imposed?

Answer: The Adjudicating Officer imposed a penalty of Rs. 50,000 on the company and Rs. 10,000 each on two of its directors, Karnail Singh Bhoon and Vimal Taparia, for the violation of Section 10A(a) of the Companies Act, 2013. The penalty was for a delay of 10 days in compliance with the provisions of Section 10A(a).

Question: What is the process of compounding in this case?

Answer: The company initially filed an application for compounding under section 441 for the violation of provisions of Section 10A of the Companies Act, 2013. However, it was observed that the violation should be adjudicated under section 454 of the Companies Act, 2013. The company then submitted an application stating that the initial application filed should be considered as an adjudication application under section 454 of the Act. The MCA reviewed the application for compounding and initiated the adjudication process.

Question: What are the implications of non-payment of the penalty

Answer: If the company or its officers do not pay the penalty within 90 days from the date of the receipt of the order, they may face further consequences. For the company, this could mean a fine ranging from twenty-five thousand rupees to five lakh rupees. For the

Question: What are the implications of non-payment of the penalty

Answer: If the company or its officers do not pay the penalty within 90 days from the date of the receipt of the order, they may face further consequences. For the company, this could mean a fine ranging from twenty-five thousand rupees to five lakh rupees. For the officers in default, this could result in imprisonment for up to six months, a fine ranging from twenty-five thousand rupees to one lakh rupees, or both.

Question: What are the implications of this case?

Answer: This case serves as a reminder of the importance of adhering to the timelines stipulated under the Companies Act, 2013. Companies must ensure that they do not commence any business or exercise any borrowing powers before filing the required declaration (INC-20A) within the prescribed period. Failure to do so can result in penalties. This case also highlights the importance of understanding the process of compounding and adjudication under the Companies Act.